C-suite executives are at the core of any successful company, and they have the most responsibility for steering their companies through the unpredictable tides of risk. Given that creating value for the company is closely linked to risk management, these high-level executives need to create a clear connection between the various risks that could prevent their accomplishment and the company’s key objectives.
Objective Setting
When defining its purpose, a corporation must inevitably establish objectives that are consistent with its mission and broader aims. But this sort of alignment doesn’t happen in a vacuum; it also requires taking the company’s risk tolerance into account.
As an example, think of a business growing into new markets. As it pursues its strategic expansion ambitions, the company may find that it needs more regulatory people to handle the complex regulatory environment in new regions. The organisation ensures a harmonious connection between its ambitious aims and the proactive steps taken to limit potential risks by matching its risk management measures with its expansion ambitions. This approach promotes a sustainable and balanced route towards success.
Risk Management
Corporate risk management is a proactive approach aimed at identifying and mitigating potential risks early on, ensuring a minimal impact on the company’s value. Explore the key risk management strategies:
Risk Reduction: Minimising unavoidable risks is essential for curtailing potential losses. This often occurs during the planning stage, where actions like distributing work among employees help mitigate financial vulnerabilities in the event of unplanned departures.
Risk Transfer: Shifting risk to external parties, frequently through insurance, is crucial for ensuring uninterrupted business operations. Businesses purchase insurance policies to protect against financial losses, with the proceeds aiding seamless operations.
Risk Avoidance: Eliminating risks entirely is achieved through strategic measures like elimination, substitution, separation, and prudent planning. An example includes steering clear of hazardous materials to eliminate potential dangers. However, this approach may limit growth opportunities and profits.
Risk Retention: Accepting risks, either in part or entirely, without reducing their frequency or severity, characterises risk retention. An example is acknowledging the risk of theft or burglary due to the higher cost of insurance coverage, ultimately absorbing losses when risks materialise.
Disclaimer:
This article should not serve as a substitute for independent professional advice. Contact Summit Planners to schedule a consultation with our team of professionals.
Sources:
- https://searchinform.com/roles/c-level_executive/
- https://corporatefinanceinstitute.com/resources/career-map/sell-side/risk-management/erm-corporate-governance/
- https://www.investopedia.com/terms/e/enterprise-risk-management.asp
