Managing risk is a major key to success—it’s imperative to mitigate risk at all times. For many business owners, this looks like placing a heavy focus on financial risk management. After all, a business is driven heavily by its finances.
While financial risk management is important, if that’s all you focus on, then your risk mitigation strategy is incomplete. Knowing about all types of potential future threats prepares you to deal with them properly.
If you haven’t already made strategic risk management a priority in your business, here are several reasons to do this now.
1. The future of your business depends on it
Strategic risk management will help your company’s senior executives think about and plan for the future rather than remain stuck in day-to-day operations. Solving problems without accounting for the future can backfire over time.
This is especially important where cybersecurity is concerned. Part of your strategy should include monitoring risks related to emerging technology in your industry, like NFTs and cryptocurrency in the financial sector. You have to be forward-thinking to stay ahead of the curve.
You also need to manage risks associated with competition, market changes, and changes in customer demand. It’s necessary to incorporate the big picture into decision-making, and that’s what strategic risk management helps you accomplish. A strong strategy will serve as a framework to make higher-ups feel more comfortable making decisions with a far-reaching impact.
2. Unmitigated risks threaten your business’ growth
Your organization’s growth hinges on your ability to manage risk. Some risks can impact multiple categories and may even put you out of business. For example, according to PwC, cyber threats can cross at least four categories: cyber, data, clients and products, and regulatory. Once a hacker gains access to your network, they can exploit a vulnerability in fraud controls to gain access to applications and user IDs. From there, they can create fraudulent financial accounts to steal funds from your business.
You can’t grow your business if you don’t manage risks that can devastate your business.
3. Regulatory fines are massive
If your organization doesn’t follow the rules for your industry, you could end up paying a significant amount of money in fines. Regulatory fines aren’t small potatoes. Although many businesses get hit with fines equating to tens of thousands and sometimes millions, compliance fines can be in the billions.
Most of the time, businesses that get fined skipped best practices because they don’t think they are at risk. For example, retailers often fail to encrypt customer data on their servers, and when they get hit with a data breach, millions of records are compromised. Had they encrypted the data, a breach wouldn’t have resulted in a fine because it wouldn’t have been readable. Since encryption is suggested and is not a required solution, many businesses don’t bother; they only implement the basic requirements.
It’s ideal for your executives to create policies independently of any regulations rather than creating policies in response to new regulations. A proactive approach is a better way to manage risk than always being reactive.
4. You may not know about all risks
You can’t mitigate risks if you aren’t aware of them. Strategic risk management will force you to uncover risks you didn’t know about beforehand. If anything has the potential to get in the way of achieving your objectives, you need to know.
For example, the disappearance of American-Made selvedge denim, forced many clothing manufacturers to switch to alternatives that decreased the quality of their products, upsetting customers. Had these companies known beforehand, they could have eased customers into the changes by managing expectations.
Make strategic risk management your priority
Now that you know more about why it’s important start incorporating strategic risk management into your overall risk mitigation strategy. Consulting a professional is the best way to get a strategy tailored to your organization’s needs. However, you can start by defining your business objectives to use as a framework and establishing KPIs to measure results.
There are several more steps involved in developing a strong risk mitigation strategy, like identifying risks, establishing KRIs, and setting your business up with risk reporting and monitoring. All of these factors are critical for success and are best implemented with the help of a risk management professional.
