Every business takes risks. However, these risks need to be managed in order to minimize the impact of risks that don’t turn out well. For this reason, every business is in need of risk management and needs to have a suitable risk management plan.
Benefits of Risk Management For Businesses
Risk management plans offer several benefits that make them a worthwhile endeavor for every business. For example, risk management plans help companies to identify the potential risks they may face. Being aware of these risks allows businesses to make plans to avoid specific risks or deal with them when they arise.
Having a risk management plan also makes financial sense because it allows businesses to prepare themselves financially for the most likely problems. It may also increase a business’s appeal to lenders. In addition, risk management plans protect the company’s resources by allowing the company to prioritize risks and plan to deal with each possibility. This conserves important resources, allowing the company to focus on more important tasks such as accomplishing sales goals and more.
Risk management in business can improve the company’s brand by letting employees, customers and other businesses know that the company is responsible and resourceful. Furthermore, risk management plans give companies a chance to gather important information that may be useful for other purposes as well.
Three Ways Risk Management Plans Improve Your Company
Risk management plans improve your company’s health, integrity and resilience in many ways. Here are three ways a solid risk management plan will bolster your company.
1. A Risk Management Plan Makes for Consistent and Efficient Operations
In the process of risk management planning, companies often discover risks that would cause their business to operate inconsistently or inefficiently. For example, if a company discovers that is relies on a specific part to produce a key product and that the part in question has always been obtained from the same source, the company has discovered a risk. If the source suddenly dries up, the company cannot operate efficiently. To manage this risk, the company needs to find alternative sources for the part to use as a backup.
2. A Risk Management Plan Leads to More Satisfied Customers
Risk management planning helps a company to improve nearly aspect of its business operations, from the development of products and services to the company’s finances. All of these improvements allow the company to operate more effectively, which in turn improves customer satisfaction.
3. A Risk Management Plan Gives You a Healthier Bottom Line
As a business engages in the risk management process of planning, it will discover a significant amount of information that may reveal operational inefficiencies, opportunities to save money and opportunities to avoid or deal with risks that could compromise the company’s finances. Identifying and resolving each of these issues will improve the company’s bottom line.
The Role of Insurance
Risk management plans should always include provisions for insurance. Insurance coverage is one of the best ways to reduce a risks impact on the company. The type of insurance included should be based on the nature of the business and the specific risks it faces.
- Risk management planning offers company’s a wide variety of benefits, from protection of resources to an opportunity to a better reputation for the company’s brand.
- Taking a risk management approach also improves the consistency and efficiency of operations, leads to more satisfied customers and boosts the company’s bottom line.
- The issue of insurance should always be included in the risk management planning process.
Marine Agency offers a wide variety of insurance coverage to meet the needs of different companies. Please contact us today to learn more about the importance of a risk management plan, general risk assessment or to know about our business insurance policies.
**The original post can be read below. June 2015.**
In business, why do we manage risk? The simple answer is, risk taking is a part of every business, but it is important that a company knows how to deal with the impact of the negative risks. This makes the need for risk management in business apparent. Risk management plans help a business determine what their risks are in order to reduce their likelihood and provide a means for better decision-making in order to avoid future risk. The importance of risk management in business cannot be understated. Keep reading to learn why risk management plans are an important element of successful businesses. We’ve broken it down into the 6 most important reasons for risk management.
1. A risk management plan helps companies identify risk
It is important for a business to identify potential risks. When a business is aware of the potential risks that are associated with their business, it is easier to take steps to avoid them. Knowing the risks makes it possible for the managers of the business to formulate a plan for lessening the negative impact of them. Also, once the risks are identified, managers will be able to analyze them and make a logical decision regarding how to deal with them. According to the Huffington Post, there are four main types of risk about which a business needs to be aware.
- Market risk is the risk that is associated with the potential for the value of the assets of a business to decrease in due to external factors such as interest rates, foreign exchange rates, and commodity prices.
- Credit risk refers to the losses that occur when a debt that is owed is not paid to the company.
- Operational risk refers to the potential of business losses that occur due to inadequate actions or failures on the part of the business or external factors. Some reasons for operational risk include the following:
- Internal fraud
- External fraud
- Employment practices
- Client and business practices
- Business continuity practices
- Reputational risk develops from the possibility of damage to the company’s reputation due to both internal and external factors.
2. Having a risk management plan is fiscally prudent
Businesses that have risk management plans in place can more easily be financially prepared when a problem arises. Often, lenders will be more willing to increase credit limits or extend loans to companies that have a risk management plan in place.
3. A risk management plan protects a company’s resources
A risk management plan not only identifies risks, it also makes it possible for a company to prioritizes them. This allows a company to plan for the risks and respond to them more quickly and appropriately. This course of action saves the company time, money, and physical resources and allows workers to spend more time working at tasks that are related to the business.
4. A risk management plan improves a company’s brand
When a company is proactive and creates a risk management plan, it sends a positive message about the business. Employees feel confident that they are working for a resourceful and responsible company, and customers have assurance they are doing business with a company that is proactive and professional. Overall, having a risk management plan shows that a company is reputable and holds itself to a high standard.
5. A risk management plan can help a company discover reusable information
Risk management requires a collaborative effort and involves many people. The information that is gathered and learned through the process of developing a risk management plan can be applied to situations that arise well after the plan was developed. Therefore, those who are impacted by the plan do not need to start from scratch whenever an issue needs to be resolved.
6. Risk management plans and insurance
Every risk management plan that is created should include insurance as one of its elements. Part of creating a risk management plan is determining how to reduce the impact a risk will have on a company. Having appropriate insurance in place is one way to help defray the effect of negative risks. Some examples of businesses insurance that is helpful to include in a risk management plan include:
- Day spa and salon insurance can cover a salon owner in the event a client’s hair or scalp is damaged during a processing treatment.
- Tattoo shop insurance can cover a shop owner in the event an artist makes an irreparable mistake during a tattooing.
- Performers insurance covers a performer if an audience member is injured during a performance
- Martial arts studio insurance protects a studio owner if a student is injured during instruction.
- Camp insurance can protect a camp owner if anyone is injured on the camp’s premises.
All businesses should have a risk management plan that includes insurance coverage.
Marine Agency provides insurance coverage to fit the needs of every business. Contact us today to see how we can help your business. We’d love to hear from you!