Risk Management

Risk Management Management

Ten years have passed since the Sarbanes-Oxley Act was passed. This has created the need for better corporate governance and compliance. There have been many improvements in business practices over that period. Despite this drive, some companies have only seen increased risk management issues as a result. In most cases, the primary problem appears to be a failure to clearly define risk. Instead of looking at all the threats, as they should, these companies choose to concentrate on a small number of subsets. For example, the guilty may only focus on compliance or operational risks and ignore the larger threats.

Companies should have an all-encompassing risk management program in order to be effective. This will allow them to plan for all possible risks and avoid becoming overwhelmed by the many areas that are most important to them. If this happens, the company’s entire risk management program will be rendered useless.

Recent research that examined risk management in more than 1000 companies found that strategic risk was the largest risk area organizations should be concerned about, and the one that has caused the most damage to companies. Ironically, strategic risk has been one of the least feared areas for many companies. To address this problem, companies will have to examine how they define risk and look closely at their organizational structure to see which areas could be most problematic.

It all boils down to moderation, planning, and forethought. While risk management is not an easy task, it can help companies strengthen their corporate governance practices and protect against any undue losses.

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