How Poor Risk Management Affects Business Performance and Profitability

Risk management is at the center of balancing business momentum and driving sustainable outcomes. However, inherent challenges like a hybrid workforce, evolving regulations, and tech advancements are making things more difficult than ever.

Organizations have often paid a hefty price for poor risk management processes impacting profit streams, data, and revenue. The stats speak for themselves.

• Insider risks have led to an average annual cost of less than USD 16.2 million. 
• It took organizations more than 90 days to respond effectively to insider risks amounting to USD 18.3 million in damage.
• Close to 50% of business leaders are reportedly increasing their investments in cybersecurity and privacy as top risks.

It’s normal for business owners to revisit their risk management strategies from time to time. However, it makes sense to know what problems they are up against. This article offers a closer look at how suboptimal risk management impacts profitability and performance along with possible fixes. 

Overspending on Budgets

Implementing a functional risk management plan involves a lot of money. However, a poor risk management process can cost you even more. If you witness budget overspending for multiple projects, know that you are a step behind in managing risk and allied actions.

Overspending on a project is not uncommon. But it always has its roots in unidentified risks. This puts the project team in jeopardy of arranging funds. This is where partnering with an insurance and benefits firm can help manage the odds. Click here to know more.

The Fix: Pay attention to a project’s perceived risks before starting. Always make room to cover any mitigation by designing a contingency fund. This will help keep things on track with the pre-approved project budget minus ad hoc spending.

Sub-Par User Adoption

All modern businesses require team members to follow a certain process, which includes working with certain tools and methodologies. Failing to do so lowers the work standard. So, it’s important to find the “right-size” approach for risk management.

The biggest challenge in this case is poor user adoption, which is either due to a lack of robustness or simplification. There are scenarios where project managers set their own work standards, attracting inadequate control across changing environments. 

Besides, a complicated process often sees team members streamlining vital tasks and ignoring the rest. Together, they account for poor standardization and add to the workload.

The Fix: Any alteration in working methods needs to be done in accordance with a change management policy. So, before devising the best risk management process, always talk to your team members about their preferred way of working. That way, you can be assured that your risk management process reflects your organizational ethos.

Overdue Projects 

Unforeseen risks are always a bummer. They hinder profitability across projects because it takes time to assess, monitor, and track such risks. It also accounts for delays because the risk management activities take longer than anticipated. As a result, other activities are pushed down the schedule.

The Fix: Early identification of anomalies is the key. Organizing risk management workshops throughout the project is always a wise call. Besides, project owners should work shoulder-to-shoulder with managers to give them ample time for scheduling risk management activities. Additionally, depending on the methodology you use, include a buffer time for all high-risk projects.

Unhappy Clients 

No client wants to be a part of something that is perceived as a high-risk execution. When they have chosen you for the job, they would like to know what you can do to mitigate threats. In short, you should always have a plan “B” ready.

The Fix: Risk management is one performance marker that uniquely separates leading companies from the rest. It has to do with how these companies involve their clients in their risk management strategy. Doing so helps them plan the necessary steps to protect brand reputation and investment. That’s why regular risk reporting to clients is highly recommended.

Failed Projects 

This is, by far, the worst-case scenario that any business would expect to face. A failed project means business objectives weren’t met and the investment (both time and effort) has gone to waste. Inadequate risk management is often the underlying reason. It can cut profits, and even limit the chances of getting more projects in the future.

The Fix: Businesses should always include risk management within project control. That way, they can get early warnings of when and how a risk can potentially hurt project goals. It also helps them embrace robust escalation processes when a serious risk is encountered. If the client is involved in the process, it can further facilitate key decisions.

Time to Design a Winning Risk Management Strategy for Your Business

So, you see, risk management doesn’t have to be complicated. After all, it’s the underlying framework for your business to avoid the odds across any project. With existing risks increasing every day and new unseen risks threatening profitability, this would be the best time to rethink your risk management strategy. 

According to Sahouri Insurance, the best way businesses can deal with operational risks is with an integrated approach. This approach is about consolidating fragmented insurance policies and adopting a holistic solution that ensures organizational efficiency. 

Being ahead of risks with a strategic approach can help you maintain the profitability and performance of your business. The effort is surely worthwhile.