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Discover leading insights from our finance experts at The Finance People. Use this financial advice to enhance your strategy, to overcome common financial challenges within SMEs, or to better understand key areas of finance for business. 

The Benefits of a Great Risk Management Plan

To first understand the benefits of a great risk management plan, we must first look at what we mean by business risk and risk management.

A risk is an event or threat that causes uncertainty about whether a business is going to meet its goals and expectations. Unforeseen risks can cause major and sometimes irreparable damage to a businesses finances or reputation.

Risk management is a process that involves identifying and analysing potential threats, and then mitigating the impact through audits, reports and planning.

To learn more we have written more in depth on these subjects, from how to minimise business risk to the different types of risk management strategies. In this article, we’ll talk you through the benefits of a great risk management plan - and let you know how you can go about starting your risk management plan for your business.

Achieve your business objectives

Firstly, a risk management plan can help you increase the likelihood of achieving your business objectives. Defining future objectives without considering risks could result in unachievable objectives and unexpected implications should one of the risks come to fruition.

Risk management is an essential part to decision making and assessing how achievable and realistic a company's goals and objectives are. By completing a full assessment, as well as examining how risks might affect these, you’re more likely to put in place the steps required to achieve the business objectives you have set. Ultimately, this means a greater likelihood of long term success.

A risk management plan can help you increase the likelihood of achieving your business objectives.

Improve the identification of opportunities and threats

By identifying threats before they happen, a business has the opportunity to try and prevent risk, or mitigate the impact. Further, looking into a business in this depth can also help to identify future opportunities. A comprehensive look at a business's finances, performance, policies and procedures can provide a chance to identify missing opportunities, such as a previously not considered audience, product or way of working.

Improve mandatory and voluntary reporting

A risk management plan will draw attention to the mandatory and voluntary reporting that is needed for your business that may have otherwise been missed or not comprehensively completed. With better reporting a business can reduce risks and implications associated with not complying with mandatory reporting and improve knowledge.

So whether this simply means reporting is more accurate or more frequent, having more data at your fingertips leads to the chance of making better data-driven decisions. In doing so, you’ll be more adaptive to your target audience, clients and environment.

Compliance with relevant legal and regulatory requirements

Through a well considered risk management plan, a company can avoid problems by ensuring they are in compliance with regulations and implementing proper security procedures. Compliance with legal and regulatory requirements will prevent legal action in future.

Thorough security procedures will reduce the risk or a security threat and in turn reduce unnecessary costs and fines (which’ll impact your cash flow), as well as maintain the company's reputation.

Reduced costs

When avoidable financial risks are reduced so are the costs associated. By preventing or minimising the impact of an incidence, you will reduce the financial burden to your business. Unexpected costs impact cash flow - and poor cash flow can be the difference between long term success or fast decline.

Additionally, when a company takes a closer look at their finances, which is required for a risk management plan, they can identify areas of unnecessary spending and costs can be saved. This leads us onto…

Better budgeting

By having a better control of a company's finances, they will also have a better understanding of their budgets. More efficient budgets can be created, therefore finances allocated more effectively - increasing cash flow and the amount of money in the business to deal with potential future challenges.

When a business has greater knowledge surrounding their finances and budgets, they will no longer be forced to rely on guesswork, budgets can be more accurately estimated and objectives will be easier to set and achieve.

Effectively allocate resources

When working to a more precise and accurate budget as discussed above, a business will be able to effectively allocate resources. With an in-depth knowledge of a company's financial position, as well their policies, performance and potential risks in the future, a company is better equipped to allocate or reassign finances, time or other resources. Ultimately, this could mean faster or more effective growth and directly impacts your bottom line.

Enhance health and safety performance

Training employees on your risk management procedures can result in efficient and safe practices within the workplace. When combined with proper health and safety policies and adequate insurance, you can be confident that you have done everything possible to avoid potential incidents with both employees and customers, therefore reducing your liability in the case of a lawsuit.

Improve stakeholder confidence

Ultimately, with all the above business benefits in mind, a risk management plan allows a company to fully explore and understand the policies and procedures specifically related to their business and make decisions to benefit business performance. This increased knowledge will improve stakeholder confidence and reduce the risks associated with diminished stakeholder confidence.

Maintain customer trust

A big risk to a company that faces risk is reputational damage, so when a company is experiencing reduced incidences and running smoothly, the customer journey will continue seamlessly.

A company will build a reputation for reliability and stability and should any event or factor risk this in the future, a proper risk management plan will help to lessen the impact.

If you’d like to reap the benefits of a risk management plan and would like help planning for a risk-free future, talk to The Finance People today.

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