Benefits of Effective Risk Management

Procurement and Audit notes revision

Companies tend to introduce risk management in response to outside factors such as scandals, legislation or regulation (for example, ‘Stock Exchange reporting requirements). They are less likely to introduce risk management because it will help the corporation produce better results’. ‘
However, a business case can be made that proactive and systematic risk management brings the following benefits:
• Avoids or minimises costs incurred by risk events, shocks and crises (e.g. by avoiding litigation and damages; theft or misuse of funds; loss or destruction of assets and so on)
• Avoids or minimises costs incurred by failure to demonstrate risk mitigation (e.g. by enabling reduced insurance premiums)

• Avoids disruption to production and revenue streams (e.g. through loss of data or assets, supply failure, logistics disruption, technology failures and so on)
• Secures supply, by mitigating supply chain vulnerability
• Protects market share (e.g. by managing marketing, brand-related and reputational risks; avoiding technological obsolescence; avoiding theft of competitive intellectual property; arid so on)
• Supports business and supply chain resilience: enabling business continuity and disaster recovery
• Safeguards the key human resources of the organisation from pain, suffering, insecurity and distress (which, quite apart from humane considerations, impact on their motivation, morale and performance)
• Enables the organisation to attract and retain quality employees, suppliers and network partners (e.g. by avoiding a damaged employer brand and reputation, avoiding loss of morale cite to accidents and litigation)
• Helps management objectively to decide which risks are worth pursuing (in order to seize opportunities) and which should be avoided — allowing higher risk opportunities to be successfully pursued (while mitigating their downside risk)
• Improves the quality of strategy, policy, and decision-making (by encouraging environmental monitoring, risk awareness, analysis of processes and supply chains)
• Improves organisational and supply chain co-ordination (by encouraging cross-functional and cross supply-chain communication on risk issues)
• Improves stakeholder confidence and satisfaction (e.g. in regard to corporate governance, the protection of consumer and shareholder interests, and the equitable sharing of risks through the supply chain).

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