1.3 Importance of risk management

The value and importance of risk management depends on the specific industry, the operating model and the environment of the company or other organization. In general, risk management aims to keep the organization on its chosen path. Strategic risk management may be vital, especially in start-ups and rapidly growing companies. Even for companies who are only committed to one technology, product or market, strategic level management is of paramount importance.

Good risk management provides financial stability for all organizations, helps to make decisions based on realistic grounds and improves crisis preparedness. It creates and supports a positive culture in which everyone considers risks and is prepared to manage them.

An organization that manages its risk also manages its reputation. This is important from the point of view of all possible stakeholders.

Risk management has a direct impact on operational costs and operational efficiency. When investment targets have been prioritized based on a consistent analysis, it is easier to allocate resources correctly. The objectives of an operation can be realized with more certainty when the risks are managed.

Risk management is not based solely on voluntariness. Several inspection bodies, such as internal audits, auditors, certifiers and public control bodies, such as financial supervision, insist that organizations have convincing risk management practices in place.

Good risk management may, ultimately, improve a company’s competitiveness. A company will be able to adapt faster changes occurring in their operating environment, for example, disruptions in supply chains, and to quickly take advantage of new opportunities.