Why Risk Management is Important?

The year 2020 will go down as a year to remember not only because of Covid-19 but also because of the high number of uncertainties and disasters that we faced during the year, from locust infestation to many industrial accidents and cyclones hit throughout the year. All of this has only highlighted the volatility of today’s world.

When the Indian government initiated the lockdown from March 2020, the GDP took a sharp hit, and business activities came to a complete halt. The government permitted movement of only necessary goods; hence, modern business practices like globalization and just-in-time inventory created risks of their own. Businesses could never predict such a situation, and they were faced with many new problems while performing day-to-day operations.

Can you be sure that 2021 is going to be better than in 2020?

The world is changing, but the pace of change today is far more incredible than it was yesterday. So the uncertainty and volatility are only going to increase. No individual or organization can predict the specific risks that one can face in the future. But, we still need to prepare for an uncertain and volatile future, including climate change, technological disruptions, geopolitical risks, threats to the global supply chain, and issues related to cyber-crime, data protection, and privacy.

This is where Risk Management comes into play. The top management must be pro-active and establish well-defined directions to clarify how to act when these challenges arise. Organizations need to move at a rapid pace to deal with the risks, as and when they appear, this is not possible if risk management is taking place just at the back office to meet with the statutory standards.

The saying “Higher the risk, higher the return”, may not be right in the current scenario. High risk does not always assure you higher returns, whereas not taking risks is not an option for a business. “Risk is a choice rather than fate”. Risk management is about avoiding or mitigating risks and losses and identifying opportunities that fit into the risk appetite of an organization.

Organizations are still recovering from the pandemic’s effects, but most of them are beginning to plan for whatever business as usual will look like moving forward. Risk management may not spot the next big disruptive event, but it can help us be prepared with an effective response to whatever waits for us.