Benefits of risk management
From CEOpedia | Management online
| Benefits of risk management |
|---|
| See also |
There are multiple benefits of risk management in projects, quality management, information security or finance. The article presents benefits for each of those areas.
Benefits in project management
According to Project Management Institute project that use proper risk management process are less exposed on failure. The can achieve as much as 15% higher success rate. This comes with:
- 17% increase in cost efficiency,
- 15% increase in schedule efficiency.
Even the single, but significant risk, that was averted can pay for the implementation of risk management process.
The main benefits of risk management in project management are:
- improved planning,
- more effective use or resources,
- reduced costs of legal actions and prevention,
- higher reliability,
- quick response to opportunities,
- higher confidence of stakeholders,
- better quality of communication.
Benefits in quality management
The risk management in quality management systems was introduced by ISO 9001:2015 standard. It replaced preventive actions. The main results of this change are:
- better understanding of results of quality actions,
- extended understanding of internal and external factors influencing enterprise,
- extended planning leads to better results,
- enhanced responsibility for improvement actions,
- removal of dead preventive actions mechanism,
- achieving continuous improvement in areas that are important for the company.
Benefits in information security
The risk management is essential part of information security management system. The key benefits are:
- increase in trust which leads to better sales,
- lower chance of information security incidents,
- better business decisions due to extended view and confidence,
- saving money due to more efficient controls and effective architecture or information system
- increased business continuity,
- ability to provide products and services during unforeseen circumstances and emergencies,
- improving communication and whole information system,
- confidence and better sleep.
Benefits in finance
Risk management in finance is understood somewhat differently than in other areas, however the methods used are similar. The main benefits are:
- access to better offers of banks,
- lower interest rates,
- lower insurance costs,
- limit and protection of liability in case of a lawsuit,
- protecting resources,
- reducing costs of risk events,
- production contingency planning - increased flexibility,
- change in business culture,
- better understanding of results of decisions by managers,
- more time to prepare for anticipated events.
Examples of Benefits of risk management
Projects
- Risk management in projects helps organizations to identify any potential threats or risks that may arise in the course of a project. This helps to reduce the chances of costly mistakes or delays due to unexpected complications. It also helps to ensure that the project is completed on time and within budget.
- Risk management can help to identify any areas of weakness in the project plan, allowing problems to be addressed before they become costly. It also helps to minimize the impact of any risks that do emerge, allowing the project to continue and be successful.
Quality Management
- Risk management can help to ensure that products or services are of a consistent quality, as any potential risks can be identified and addressed before they become an issue. This helps to maintain customer satisfaction and loyalty.
- Risk management can also help to identify any areas in which quality assurance procedures need to be improved, reducing the chances of costly mistakes or defects.
Information Security
- Risk management can help organizations identify any potential security threats that could compromise their data or systems. This helps to ensure that any potential risks are addressed and mitigated as soon as possible.
- Risk management can also help organizations to identify any areas in which their security protocols or processes need to be improved, helping to ensure that their data and systems remain secure.
Finance
- Risk management can help organizations to identify any potential financial risks that could affect their bottom line. This helps to ensure that any potential risks are addressed and mitigated before they become an issue.
- Risk management can also help organizations to identify any areas in which their financial processes and procedures need to be improved, helping to ensure that their finances remain secure.
Limitations of Benefits of risk management
Risk management has many benefits, however, there are also several limitations that must be considered. These include:
- Lack of resources: Risk management requires investments in tools, personnel and training, which can be costly and not always feasible for organizations.
- Complexity: Risk management processes are often complex and require special skills to be properly implemented and managed.
- Over-complication: Risk management can become overly complex, leading to a lack of clarity and understanding of the process.
- Unreliable data: Risk management processes rely on accurate data, which can be difficult to obtain, making it difficult to make reliable decisions.
- Time-consuming: Risk management processes can be time-consuming and time-consuming to implement and maintain.
- Resistance to change: Risk management can require changes to existing processes and procedures, which can be met with resistance from employees.
References
- Wawak S., Planning in ISO 9001:2015
- Raz, T., & Michael, E. (2001). Use and benefits of tools for project risk management. International journal of project management, 19(1), 9-17.
- Akintoye, A. S., & MacLeod, M. J. (1997). Risk analysis and management in construction. International journal of project management, 15(1), 31-38.
Author: Slawomir Wawak
