Benefits of Risk Management Essay
1. More effective strategic planning Effective strategic planning means the objectives set by the companies suit the company’s operations capabilities and the planning helps the company preserve its values and seek improvement. Risk management means coordinates activities to direct and control the organization with regard risks. The coordination between activities helps the company to communicate and understand the business activities as a whole, this will let the company understand the operation capabilities better and enable the company implement realistic strategic plan into organization
2. Better cost control – risk management set a objective acceptance of risk level. Company has a guide to manage risk and control negative consequence. – The cost benefit thinking is addressed by the risk management. In the past , companies think they have unlimited resources. Companies tend to transfer risks by buying insurance. Nowadays, risk management does not think transferring all the risks by insurance is enough as the competitiveness is increasing . Risk management provide more solutions, such as , avoiding risks, loss control, transfer part of risks not only by insurance but also by hedge funds and retain some risks( active retain is advocated). Company can save a lot of money by compare cost and benefit of different ways.
– The risks management requires forward thinking. This will help the company to prevent downside risks and its bad consequences; also this will help company to catch opportunities to avoid opportunity cost .
– greater trust, openness and transparency can be obtained by the company by applying risk management .Risk management requires company communicate with stakeholders(suppliers ,customers ,government, employees and shareholders) and different levels in the company. This will increase the supply chain efficiency and effectiveness. Also lower financing cost and regulation cost ( carbon tax) would be obtained. 3. Increased knowledge and understanding of your exposure to risks -The risks management requires the companies continual plan and manage its risks. Continual evaluation and monitoring control and environment is required. This process helps the company to learn more about itself as more experiences of dealing with same risks ,also it help the company forward looks its downside risks and capture opportunities. – Communication between different levels are required( risk management culture).
4. More systematic and thorough method of decision making -The risks management manage risks in a decentralized way by a centralized policy. – risk management set process of individual company to manage risks. The process enable company think in a complete way to manage risk.
5. Prevention rather than reaction to risks * The risk management requires the company to manage risks proactively rather than simply only reacting to the risks they face. This principle would help the company predict the risks and implement preventative control to prevent risks. * Risks management impose great emphasis on risks management culture. Each individual in company should pay attention to the risks. The effective communication between employees and management should be obtained.
6. Better preparedness for external review -Risks management aligns accountability to top managers . The managers have more pressure to work hard and act carefully. – The risk management processes greatly require communication with stakeholders and different levels within company. this will greatly improve the company’s understanding of different parties needs, concerns and issues . in this way , company can better meet expectation of external parties
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