{"id":4536,"date":"2021-11-16T09:26:15","date_gmt":"2021-11-16T09:26:15","guid":{"rendered":"https:\/\/staging3.zealousys.com\/goatrisk\/?p=4536"},"modified":"2021-11-22T15:43:00","modified_gmt":"2021-11-22T15:43:00","slug":"why-risk-management-is-important-for-your-business","status":"publish","type":"post","link":"https:\/\/staging3.zealousys.com\/goatrisk\/why-risk-management-is-important-for-your-business\/","title":{"rendered":"Why risk management is important for your business"},"content":{"rendered":"

The worldwide economy is changing at a rapid pace<\/b><\/span><\/h3>\n

Covid 19 has shaken worldwide markets and could be the catalyst for the next phase of our global economy. Given the impact on society, and the pace of technological developments in fields such as biotechnology, AI, processing power, data, space, alternative fuels, and batteries – a new dawn is at hand. So why is risk management important? Because w<\/strong>e are entering a time of profound change. Our lives, as we know them, will be transformed shortly.<\/strong><\/span><\/span><\/p>\n

We have no idea what advice to give our children about their future career choices, since all we know is that they won’t be the same as what we’ve encountered in our lives. The best we can do is provide them with transferable skills such as creativity, communication, leadership, team-working, and instilling a work ethic and personal resilience that will help them flourish in whatever it is they do.<\/span><\/span><\/p>\n

What can we learn from our experience?<\/b><\/span><\/h3>\n

Before we leap into a future marked by hyper-change, there are important lessons to be learned from our recent past, which witnessed the most rapid economic growth and technological progress in the history of humanity.<\/span><\/p>\n

The fascinating video above indicates just how much the business world has transformed in the last 25 years. This isn’t about who the 10 biggest firms on earth are, and their market value. Instead, it’s about how change affects all businesses, regardless of size or sector.<\/span><\/p>\n

It’s not just about single businesses either. We’ve seen entire sectors develop while others fade away. The most dangerous threats aren’t necessarily from established rivals. Instead, they might be a well-resourced mega-corporation like Google or Amazon, or an unknown startup concept that can grow to unicorn status in the blink of an eye.<\/span><\/p>\n

How a<\/b>re we dealing with change?<\/b><\/span><\/h3>\n

Whilst change is the unifying theme, the skill required to navigate, pivot, or adapt is risk management<\/strong>. Risk management capability is a fundamental requirement in all businesses. It is a board responsibility, yet conducted at the coal face. Most regulators and standards require it, and every business faces it, takes it, and must manage it. <\/span><\/p>\n

Given its importance, it\u2019s unfortunate that most organisations still struggle to make risk management a dynamic, engaging, and valuable process. Instead, the majority of approaches fall into one of two categories:<\/span><\/p>\n

i) Risk management through intuition<\/strong><\/h5>\n

Most startups and small businesses manage risk by gut instinct. They know it\u2019s not ideal, but it\u2019s the easiest option when lacking professional risk expertise. Unfortunately, this is entirely dependent on an individual’s instincts, and is done on an ad-hoc basis. Given the counter-intuitive and complicated nature of risk (i.e. risks are bad for business, but they must be taken), and the many decisions that business executives must make, a negative outcome is practically unavoidable.<\/span><\/p>\n

It’s a matter of luck which mistakes occur and what their ramifications are for a business. This, in turn, contributes to the overall statistics showing why most start-ups\/projects\/change programs\/marketing campaigns have a high failure rate. Intuition will only take you so far. Sooner or later, your luck will run out.<\/strong><\/span><\/p>\n

ii) Risk management in place, but ineffective<\/b><\/h5>\n

Large, or regulated businesses, often formalise their risk management procedures, with some even hiring risk management experts and deploying software solutions. Yet, the overwhelming majority believe these protocols still fall short of delivering expected returns.<\/span><\/p>\n

The most typical criticism we hear from business leaders, is that the risk discussions seem too high-level, risks never alter, updates are too anecdotal, the procedure is more of a reporting exercise, and that there is a need to modify the culture and ’embed’ process and thinking.<\/span><\/p>\n

Ultimately, risk management isn’t leading to changes that support business decisions. Instead, the real decisions are taking place outside the process and in other forums. Many of these larger organisations therefore, spend a lot of time creating risk reports and documentation, but are in effect managing risk separately, often by intuition much like their smaller counterparts.\u00a0\u00a0\u00a0<\/span><\/p>\n

Why are even ‘best practices’ falling short?<\/b><\/span><\/h3>\n

Despite many organisations adopting well-accepted best practice frameworks and guidance for risk management such as<\/span> COSO ERM<\/span><\/a> and<\/span> ISO31000<\/span><\/a>, many are still seeking ways to obtain greater returns through better-engaged culture and an increased consideration of risk in decision making.<\/span><\/p>\n

Putting culture aside, a more detailed investigation and analysis of risk register reports shows them to be:<\/span><\/p>\n