Understanding Risk Management
What is Risk Management?
Risk Management is one of these vaguely scary phrases that most workers and contractors are apprehensive of, but don’t always fully understand. In this blog post, we’ll explain what exactly risk management is, why it’s an essential tool for a successful business, and why directors and managers shouldn’t be afraid of Risk Management in the workplace.
Defining Risk Management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.
More simply: Risk management is about identifying risks and protecting your business from these risks.
Anybody who’s ever played rugby and worn a mouthguard, gone out in a boat and worn a lifejacket, or gone skydiving with a parachute has used risk management. Anybody with a modicum of common sense and self-preservation wouldn’t jump out of a plane without a working parachute, and the same is true for businesses: Risk Management hones our natural sense of self-preservation.
The International Standards Organisation (ISO) have introduced a code for risk management to help organisations standardise the management of risk, called ISO 31000. Traditionally, risk management has been seen as solely being to prevent bad things happening. ISO 31000 addresses both negative risk and positive risk; providing a framework to manage both risk and opportunity for business. This usually requires a Risk Register and use of Risk Assessment tools.
So risk management is a fancy term for good old common sense?
At its most basic level, managing risk is common sense! However, in a corporate environment, you can’t assume that everybody possesses common sense, so you must have risk management systems, policies, and training in place to ensure the business is not exposing itself, its customers, or its staff to unnecessary or avoidable risk.
Equally important is being able to demonstrate that your business manages risk properly, so if anything does ever go wrong, you can show you’ve taken all reasonable steps to manage the risk, and have not been negligent. Australian businesses may also have a statutory obligation to record risk management processes and make those records available for inspection and audit.
Using a framework to manage and maximize positive risk, or opportunity, provides a framework for capitalizing on business opportunities; making sure you make the most of every opportunity for your business to succeed.
Risk Management Documents and Software
Showing that you manage risks effectively and equip your staff and contractors to do the same is important: If there was an accident in your workplace tomorrow, would the business be able to demonstrate that it had taken steps to manage the risk? If not, as well as being morally responsible, the company could face serious reputational damage, or even being sued or prosecuted. In the Australian Capital Territories, Corporate Manslaughter is now an offence. In New South Wales, Health and Safety legislation creates strict liability for directors, who, on conviction, may face fines of up to $600,000.00 and five years jail per offence where the breach of the obligation recklessly exposes a person to risk of death or serious injury or illness.
Managing risks in Risk Management
For responsible business owners and managers, the bottom line is that you should take reasonable steps to manage risk in the workplace, and should be able to evidence your efforts with proper documentation.
Don’t take unnecessary risks with your business; contact Beakon today to find out how you can take control of risk management in your business.