why is risk management important?
We’ve already addressed the issue of what is risk management and now it makes sense to discuss why risk management is important. After all, many people and organisations exist with no formal or planned consideration about effective risk management.
At its most basic, we live in a world full of risk and uncertainty. Things change and we can find ourselves unprepared for the unexpected. The optimistic amongst us may consider that an opportunity to express our agility whilst also saving money on formal risk management plans. The essential idea is that the best way to respond to potential risks is to plan to be adaptive, having good general contingency plans and resources available for whatever the organization faces.
On the surface, that seems simple enough, a business strategy even, but it also contains some traps. Firstly, having contingencies in place is an inefficient use of resources. They are a cost in themselves but without any risk assessment, without any specific risks in mind, it’s impossible to know whether the contingencies are sufficient or excessive. The second trap is the idea that because risks relate to uncertainty, then it is impossible to know anything at all about the internal and external risks you are facing, therefore you should not attempt to control anything about your operating environment. We might call this approach ‘helpless’ or ‘fatalistic’.