Company Survival Through Risk Management

Company Survival Through Risk Management

Risk Management is concerned with the identification and management of a company’s exposure to financial risk. In today’s uncertain economic climate, risk management has become an important factor in corporate governance and can be seen as a means of protecting the survival of a company from failure due to unplanned events.

The benefits associated with effective risk management are that it supports the effective use of the company’s resources; encourages and protects company specific goals and objectives; aligns the interests of management with those of the owners of the company; improves decision making and budgeting; supports strategic and business planning; promotes continuous improvement; and enhances communication between directors and shareholders.

To implement efficient risk management the appointment of an Internal Audit Committee, whose primary objective is to review and evaluate the company’s internal risk management policies, is seen as an effective tool in ensuring that the company’s economic goals and objectives are met.

This committee will be responsible for monitoring the implementation of the company’s controls, as well as the general legal framework of the company’s operations.

Many businesses overlook the importance that an Internal Audit Committee provide citing the fact that they believe themselves too small to bother. This is often found to be a shortsighted viewpoint when management is confronted with operational and strategic surprises and breakdowns in internal controls, which could prevent the company from achieving its objectives.

Companies that don’t assess risk are more prone to being reactive to potential risks, rather than proactive, and they may have inadequate plans to deal with adverse events, which could have a significant impact on its continuity of operations.

In summary, the directors and senior management of a company should use risk management, not only for the maximisation of shareholder wealth, but also to promote the long-term survival of the company.

How are YOU managing company risk?

Extracts from a blog: © 2012 Pearse Trust