Christine Thomas June 11th, 2020

The Importance of Enterprise Risk Management

Companies are living organisms. As such, they are subject to internal and external influences. And if unexpected events can end up with large companies, imagine those that have a smaller structure. Small and medium-sized companies are even more vulnerable to market effects, for example.

In a world with more and more uncertainties, managers face the challenge of verifying the extent to which these uncertainties interfere with this generation of value, causing damage to the business reputation and to the segment in which it operates.

Uncertainties can generate both risks and opportunities. They can add or decrease. In this sense, Enterprise Risk Management allows managers to address risks and maximize opportunities, thereby adding even more value to the business.

We are tired of hearing that what is not measured cannot be controlled, right? By measuring and using risk analysis techniques, the company achieves a balance between growth and ROI goals, always respecting strategic planning.

And if Risk Management allows you to calculate threats, assess risks and establish action plans to get around all of this, you will agree with the following: the company that does the risk management has more credibility in the market and among customers and partners.

5 reasons to use a Risk Management process

Studying the types of risks of a project is so important for your business, that to leave no doubt we have separated 5 main reasons why your company needs to do Risk Management:

1. Capital optimization

Nothing like knowing where you are stepping. The correct information regarding possible business risks allows administrators and controllers to accurately calculate capital needs. In addition, they will have more capacity to optimize the allocation of that capital.

2. Better responses to risks

With a rigorous identification of risks, it is more efficient to select the answers to these risks (How to avoid? How to mitigate? etc.

3. Reduction of operating losses

Since the potential risks have been identified, no one will be taken by surprise. Having the information in a risk management plan, the chances of reducing the associated losses are much greater.

4. Taking advantage of opportunities

Remember the story that the glass can be half empty or half full? Precisely because it considers several potential risks, the company can anticipate and have a more proactive use of opportunities.

5. Increased profitability

Enterprise Risk Management helps to optimize capital, reduces the risk of operating losses, and prevents loss of resources. This means that in the end profitability will be positively impacted.

How Risk Management works in SMEs

We talked about the vulnerability of small and medium-sized companies to external effects. If the vulnerability is greater, SMEs win by having leaner processes. Therefore, the implementation of a Risk Management system becomes easier.

Among the benefits achieved by Risk Management in an SME is the integration and automation of controllership. As a result, the failures in the relationship with the tax authorities decrease and the company avoids fines and excessive expenses. In addition, the dependence on third parties, such as accountants and auditors, also decreases.

Risk Management in SMEs

As the Risk Management plan also works to improve processes, the company benefits from the combination of reducing operating costs and increasing operational efficiency. But, if everything that has been said so far has not convinced you, we have separated some more benefits:

Integrated financial information, control over the company's operations, reduction of costs and fraud, optimization of the information flow, accurate and available information in real-time, and elimination of rework.

With all this list of benefits (which by the way can be even greater), we can say that people management and the quality of products and services increase the competitive power of the business. Therefore, it is through management improvements - such as standardized processes and information security, for example - that the company gains in competitiveness.

The advantages are many, but we know that everything new can be a bit of work. That is why it is essential that, when deciding to implement a Risk Management system in an SME, management is fully involved and plays the role of motivators and disseminators of the benefits of this good practice.

Photo by Cristofer Jeschke on Unsplash

Christine Thomas

I provide risk and compliance domain expertise to product designers and developers working on creating and maintaining our risk and compliance solution at 360factors.

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