What is risk management and why is it important?
Risk management is a process dedicated to identifying risks within a business and developing procedures to mitigate or eliminate those potential risks. An effective system helps maintain the safety of staff, whilst protecting business resources.
When asking ourselves why risk management is important we need to consider the scope of risk management. Risk management involves identifying potential risks and hazards to staff safety and then put in place procedures to minimise those risks. With this in mind, the importance of risk management is absolutely paramount: not only does it protect your staff from physical and mental harm, it also ensures the profitability of your business by reducing downtime and costly payments.
Risk management is an essential part of effective business planning and organisations are expected to provide a safe environment for workers. Work Health and Safety (WHS) regulations often play an instrumental part in risk management. WHS governs the regulations behind what’s an acceptable practice and what is not.
A specific and detailed risk management system is a vital investment for all businesses. We’re going to cover the benefits of both risk assessment and risk management and explain four crucial reasons why they’re important to your business:
- Risk assessments save your business money
- Risk assessments reduce the chance of injury in the workplace
- A risk management plan protects your company’s resources
- A risk management plan improves your company’s brand image
The importance of risk assessment in business
1. Risk assessments save your business money
Businesses invest in risk management systems to mitigate the risk of spending thousands of dollars in financial, legal and internal costs.
Effective risk management plans look beyond improving one area of the workplace. They encompass all aspects of an organisation including; safety, financial, business and environmental risk management. Here are the main cost benefits of risk assessments:
#1. Risk assessments reduce the likelihood of a workplace accident – Safety audits and inspections help businesses identify areas to improve work processes, signage, or training.
#2. Risk assessments reduce and prevent fines, lawsuits and penalties from non-compliance issues – Every organisation must comply with its State’s WHS legislation.
#3. Risk assessments show employees the business cares about their safety – Your staff are a valuable business resource. Provide them with knowledge and responsibility around improving your safety management system — not only will this lead to improved safety it will also boost morale by demonstrating your trust in them.
2. Risk assessments reduce the chance of injury or mishandling in the workplace
Every workplace has hazards. As an employer or business owner, it’s your responsibility to impose risk assessments to protect employees against WHS hazards.
According to Safe Work Australia, there are Four Steps in the risk management process:
Step One: Identify risks
Step Two: Assess risks
Step Three: Control risks
Step Four: Review control measures
Source: Safe Work Australia
Understanding these steps can reduce the number of injuries, hazards and risks in the workplace.
Step 1 of the process involves assessing the risks and mapping out situations that could potentially cause harm to people or resources.
Step 2 involves conducting a risk assessment based on factors such as:
- The severity of the risk
- Whether any existing control measures are effective
- Actions needed to be taken to mitigate the risk
- How urgently the action needs to be taken care of
Step 3 involves putting controls in place to prevent the risks from happening and what to do if they do occur.
Step 4 comprises of reviewing the process to identify any other opportunities or risks that may have been missed.
By carrying out this four-step process, you have the ability to mitigate or eliminate risks from your workplace before they even occur. The first risk assessment you carry out will be the most resource-intensive, since you need to do a review of your entire work system and processes. Year on year, the process becomes more efficient and processes will continue to be refined and improved.
Overall, risk assessments take more time, energy and resources when first implemented. In the long run, they reduce the number of injuries, hazards and risks in the workplace.
The benefits of risk management
3. A risk management plan protects your company’s resources
Risk management plans don’t simply identify risks, they make it possible for organisations to prioritise them. As previously discussed, Step Two of the risk management process involves assessing the risks (see diagram above). This is often done on a likelihood/impact matrix to help identify which resources are a priority and how quickly the risks need to be responded to.
Here’s an example of a risk matrix:
Your business has a valuable company resource; if an incident occurred in the organisation that impacted this resource, it may have a detrimental impact on the overall business processes and performance. Let’s assume the probability of the risk occurring is moderate. By looking at the matrix we can see this is a ‘high’ risk, priority area. A business would apply the matrix to all risks identified in Step One.
Identifying a course of action for each risk saves the company time, money, and physical resources.
4. A risk management plan improves your company’s brand image
Workplace incidents can lead to major PR issues such as negative publicity and a distorted brand image. For example, AGL Energy faced a coal seam gas protest. In 2013, people protested about the hydraulic fracking process AGL participated in. As a result, the company put on hold the development of 66 coal seam gas wells in Western Sydney.
When a business creates a risk management plan, it sends a positive message to stakeholders and the community. Employees feel confident they are working for a safe and responsible company and customers have assurance they are conducting business with a professional and proactive organisation.
Overall, risk management plans show that a company is reputable and holds itself to a high standard.
Now you know why risk assessment is important, create a risk management system for your own business
Risk management plans are an effective, actionable process that will save you money, reduce the risk of a workplace injury, protect your business resources and enhance your brand image.
At BusinessBasics we can take the pressure off any business that wants to create an effective risk management system — whether you need a consultant to assist you with your system, training for your team or an audit of your current safety management system we’ll show you how to maximise your risk management.
We provide the following WHS and Environmental Risk Management Plans:
- Full safety management
- WHS and Environmental Risk Management Plans
- Safety and environmental audits
- Review of your supplier and subcontractor management plans
Get in touch with BusinessBasics if your management team would like to discuss other ways to create a more productive and efficient workplace.