Faced with the development of sound governance principles, institutional investors have a particular interest in risk management. Companies that have an integrated risk management infrastructure will be able to reduce operational risk, asset devaluation, and the risk of competition. Integrated risk management has the advantage of reducing the instability of financial performance and should enable companies to raise funds at a lower cost.
Shareholder confidence may also be increased. Better risk management creates value in a variety of ways: it first reduces the likelihood of encountering difficulties; secondly, it reduces the risks for managers who have invested a certain amount of their assets in shares of the company; finally, it can lower their tax burden.
Risks are everywhere
There have always been risks in the business world. For the longest time, entrepreneurs have been considered as the one who takes the most chances, the one who risks his or her material and financial capital as opposed to human capital. However, managers and shareholders have always accepted the advantages and disadvantages and have tried to manage and succeed these risky bets.
Their approach to risk was poorly organized and often inefficient. Times have changed, and the facts have shown that the old method of hierarchical issues (manufacturing, studies, sales, marketing, administration, and so on) in risk management is no longer sufficient. Thus, a new approach to risk management has been developed. It is called Business Risk Management, which advocates for an integrated and rigorous approach to risk by assessing and locating risks in all areas that could have an impact on the organization’s strategy and its various objectives.
While there are many benefits to this type of risk management, the main advantage is its ability to avoid significant losses. If the risk can be managed well, substantial losses can be prevented. The concepts of enterprise risk management are defined by the organization’s environment. This philosophy of risk management is the keystone around which the entire architecture of a risk management program must be built.
All necessary steps concerning good risk management must be complemented by information and communication processes, monitoring, and management. Enterprise risk management programs are increasingly accepted and introduced in organizations at the request of stakeholders. The resulting benefits are too significant to ignore. Contact David Johnson Cane Bay for more details.