If risk is as much a part of daily business life as, say, breathing, then why manage it? The quick answer: by managing risk, we can either avoid the events that lead to loss or reduce the amount of loss when those events occur. Owners can bring principles and systematic processes into their businesses that help them make the decisions necessary to ensure the best possible outcome—no matter the situation. These risk management processes also help owners make critical decisions in day-to-day operations. They can assess uncertainty and implement the most efficient solutions to manage particular strategic options, projects, and operational issues.

You can’t argue with the benefits. Good risk management can reduce earnings volatility and support successful growth opportunities by preventing the leakage of critical investment capital. This increases the firm’s overall value, known as shareholder value.Risk management also promotes job and financial security. Firms that manage risk better perform better in good and bad economic times. Also, managers employed by companies that manage risk well tend to survive tough times and thrive in recoveries and economic upturns. This, as you might expect, helps to improve the health of management and employees and reduce stress.

Finally, good risk management helps protect management and directors within companies. Should something go wrong, companies with good risk management procedures in place can provide auditors, regulators, insurance companies, the IRS, and other authorities with documentation showing the steps they took to avoid or remediate the situation.