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Why Is Risk Management Important?

Organizations must understand the risks they could face. Learn more about the importance of having risk management in the workplace.

Whether you’re a small agency with a single location or a multi-coastal company operating a hybrid business, risk management is essential for thriving in a competitive marketplace.

But what is risk management and why is it important?

From deflecting ground-level hazards like employee safety to controlling high-level investments that can shift your financial health, a risk management plan is the fulcrum on which every other operation at your firm pivots. By learning the basic strategies involved—and how to deploy them at your organization—you’ll reinforce your company’s current culture and ensure future success down the line.

What Is Risk Management?

At its core, risk management is a system of processes meant to identify, assess, and control risks to a given company. Specific risk management policies and protocols vary between organizations, but most will include the following procedural steps:

  1. Identify – The first objective of risk management is to identify the possible risks your company faces or may face in the future. By identifying areas that might pose a threat to your business, your organization will be better prepared to absorb shock and minimize disruption to your existing workflows.
  2. Analyze – At this stage, each identified risk is analyzed to assess how likely they are to affect your company, and how much damage they could incur.
  3. Evaluate –  Next, an organization will rank each identified risk by potential severity. Determining the potential damage of each risk enables companies to triage their risk management strategies, whether defensive or offensive.
  4. Treat – Some potential risks require preventative treatment to minimize harm to a given business. For instance, if an office uses expensive equipment that’s vulnerable to theft, they may install a security camera system, hire security personnel, or invest in better security software.
  5. Monitor – After you’ve treated each potential risk to your company, you’ll need to continue to monitor the threat they pose. Often, treatment and monitoring plans must be adjusted over time to stay current and prepared to handle new risks as they arise.

What Are the Different Types of Risks?

The term “risk” may be used to describe any potential threat to your business’s standing and/or the well-being of your employees. 

There are five main key types of risks that may pose a hazard to companies and their operations. These include: 

  • Financial – Financial risk refers to any risk that can damage a company’s fiscal health. This type of risk typically involves an element of chance or uncertainty. Investments, for instance, contain an inherent risk factor by virtue of market volatility. In contrast, a fresh company hire can be considered a financial risk because they absorb company resources before contributing to company earnings. In this scenario, a new hire’s risk factor declines once they’ve fully integrated into the company engine.
  • Compliance – Compliance risk arises when a company doesn’t adhere to the legal rules and regulations of its industry. For instance, businesses that work in manufacturing or distribution are subject to scrupulous regulation and risk of damage if they’re found to be non-compliant. In many cases, international organizations have a high compliance risk because of the responsibility to comply with laws in each country where they operate and distribute their products.
  • Strategic – The foundation of every company is founding a business plan. When a business falls off of the path articulated in their business model, their strategic risks increase. The longer a company strays from its strategy without revising its overall business plan, the more strategic risk it incurs.
  • Security – Many companies are vulnerable to both internal and extrinsic security risks. For example, a small company that employs an individual with a record of stealing money may constitute an internal security risk. On the other hand, an external security risk may be housing critical customer data without adequate cyber security, making an organization (and its customers) vulnerable to cyber attacks.
  • Reputational – In general, any hazard sustained by a company holds the potential to incur reputational damage. Events like security failures or internal fraud can lead to a loss of customer or investor confidence in a given business. When a business’s reputation takes a hit because of an active misstep or neglecting to take proper action, it risks a range of damages from hemorrhaging clients to jeopardizing their bottom line.
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Why Do You Need Risk Management In the Workplace?

So, why is risk management important? In the workplace, risk management is a non-negotiable for several reasons:

  • Planning ahead – Companies who invest in risk management can identify risks that may have escaped their notice. By doing so, they can preempt potential hazards before they can cause real damage.
  • Protecting your finances – In the business world, most risks ultimately amount to financial losses. No matter what type of risk you focalize in your management strategy, doing so is a measure of defensively cushioning your finances in the long term.
  • Refining decision-making – You might think of risk management as a measure of getting to know your own workplace better. The more information you can cull and organize with respect to risk, the better information decision-makers will have to help your company pull forward towards its goals.
  • Cultivating relationships – A more effective risk management strategy, will lead to more confidence you’ll foment with stakeholders, investors, and customers alike. And the more confidence you can fortify, the likelier your organization will be to achieve what it was built to accomplish.
  • Protecting worker welfare – Every workforce deserves to feel secure in their employment and assured that their company has their best interests at heart. Whether you bone up office security or stabilize your investment portfolio, tackling risk management demonstrates and actualizes a business’s commitment to its internal members.

How Does Risk Management Work?

When a company implements a risk management strategy, there are several operations it can take to minimize potential or imminent damage:

  • Risk sharing – Risk sharing involves dividing the impact of the risk among several parties within a given organization. This may mean establishing your business as a corporation, where the financial risk is assumed by several parties rather than saddling a single individual with the fallout.
  • Risk reduction – When it’s impossible for a company to completely eliminate a given risk, its risk management strategy becomes risk reduction. For instance, if a company needs to make a new hire, they may adjust their talent acquisition process to ensure they hire the best possible candidates. Once a new staff member has been contracted, they may reallocate responsibilities so that no workflows are unduly interrupted during the onboarding process.
  • Transferring risk – Transferring risk is the practice of shifting liability to a different entity within a company. One common example of a risk transfer is investing in insurance for your business. Rather than absorbing financial liability internally, insurance enables companies to transfer liability to their insurance partner.
  • Risk avoidance – When a company doesn’t engage in activities that can harm its business, this is known as risk avoidance. For instance, an international liquor brand might hire a customs broker to ensure they don’t violate any liquor laws in the countries where they operate. This measure of risk avoidance ensures their shipments are compliant with the liquor laws in each company they operate, preventing compliance, reputational, and financial risk in one fell swoop.
  • Risk acceptance and retention – In some circumstances, a company must accept that a degree of risk is part and parcel of running their business. When a business can’t reduce or avoid certain risks, it’s vital to conduct a robust analysis and monitoring strategy to minimize their potential impact.

What Are the Benefits of an Established Risk Management Process?

Risk management strategies are critical to a business’s financial health, but they can also draw some major benefits for a company’s overall culture. Along with risk management, we also have several other ideas to improve workplace environments and culture. 

There are 5 main advantages to risk management planning that make it a worthwhile undertaking:

  • Employee safety and security – A clearly outlined risk management process gives employees a sense of safety and security while at work. It can also help employees relax while they perform their duties, knowing that there are strategies in place that keep their data, information, and physical selves safe.
  • Thriving company culture – Having a risk management plan in place shows your personnel that your firm knows how to handle hazards which can negatively impact its financial solvency. The more secure your team feels about their financial well-being, the more motivated they’ll be to contribute to your overarching company mission.
  • Improved communication – Clear, established, and practiced plans require good communication to be effective. Practicing your risk management plan can serve to enhance relationships between staff members and different departments of your organization.
  • Time and effort savings – When you have a strategy in place to deal with potential risks, you’ll save time and effort in other areas. Instead of having to come up with ad-hoc plans to resolve problems when they occur, you’ll have a structured plan to consult and inform your response.
  • Shore up your brand image – Companies that can control their risks will maintain a more positive reputation than those that are constantly struggling to put out fires. The better a brand’s reputation, the more attractive it is to its investors, clients, and customers.

Juniper Office: Your Source for Safe Office Design

Risk management is an indispensable element of any business, and it starts at the nucleus of your company’s mission, culture, and financial well-being: the office.

Designing an efficient, safe, ergonomic workspace is foundational for enabling every business to mitigate the risks they face. At Juniper, our expert design services furnish and organize offices customized to the unique needs and goals of individual companies. To learn more about our services, visit Juniper now and start bringing your vision to fruition, risk-free.


  1. Forbes. Why Risk Management is More Important Than Ever.
  2. Investopedia. Business Risk.
  3. IBM. What is Risk Management?
  4. American Express. 5 Potential Consequences of Ignoring Business Risk Management.