Why good risk management is good for business

SPONSORED: If your company culture is to look out for each other's safety, you'll have a happier workforce and an improved bottom line.

by MT Staff
Last Updated: 09 Nov 2016

Companies that get their risk culture right will achieve more than simply averting customer complaints, court fees and controversy. They’ll also improve their bottom line. It makes sense: in order to manage your risk you’ll need to analyse the business for weaknesses and improve its systems and culture. And as that process matures, that very same focus leads to better results too.

How it works

It’s company culture that links the reduction of operational risk with value generation. Manufacturer DuPont has developed what it calls the Bradley curve, a graph that demonstrates how people drive value, and how an organisation’s cultural maturity can affect performance. It states that many companies start with a top-down, reactive system where workers simply comply to rules around safety; but through targeted, unified training, employees become independent, realising for themselves the benefits of safe and more efficient behaviour.

The Bradley curve

As beliefs and values evolve, workers become more engaged, and more empowered to take action on safety issues. When a culture reaches full maturity its people will be interdependent – correcting each other’s unsafe behaviour, on the understanding that safety standards can only be met by working together. The operation becomes more disciplined, and value generation shoots up accordingly.

So by reducing operational risk, you also get:

Improved profits

Incidents coming as a result of unforeseen risks can be expensive, even if the incident is relatively minor. Cut them out before they happen and it’ll give an immediate boost to your P&L.

Resources freed up

Operational risk requires a company to get organised. The more organised that company is, the more resources it can allocate to tasks that actually earn money. By the same logic, the monitoring and controls you put in place will lower your operating costs, by chopping out potentially damaging incidents before they occur and allowing you to become more productive and work to a higher quality. In addition, independent or interdependent employees free up management time.

Better decision-making

Systematically mapping and communicating all the issues potentially facing a business is a key foundation of operational risk management. As a result of this process, all employees can become more focused on how the business is running, and this information can then inform everyone’s decisions. As people take ownership of safety, their decision-making improves.

A boost to your rep

Rating agencies consider effective risk management when they dish out scores, so there’s a clear link between how well you’re managing risk and what rates you’re able to get. And it’ll be good for your insurance premiums too. Meanwhile ORM has an important role in regulatory compliance – yet another potential source of competitive advantage.

Increased satisfaction

Customers are more likely to stay loyal to an organisation with a low error rate and a reputation for high quality. And the same goes for employees – with a dedicated approach to risk management, you’ll be able to draw a higher calibre of staff.

So, by strengthening its safety culture, an organisation not only reduces workforce injuries, but improves productivity, quality, and profits as well.

Find out more from DuPont about how operational risk management can boost operational excellence.

Discover the five reasons firms need to manage their operational risk
Read about risk-based thinking and how it can help your business