All organisations exist to serve a purpose. This is often described as a vision or a strategic direction and a number of objectives will be set in place to try and achieve this vision or purpose. As defined by the international standard, risk is the effect of uncertainty of objectives. Therefore, quite simply an organisation requires an effective risk management process to increase the likelihood of it achieving its objectives and ultimately its strategic purpose.
Risk management can also help an organisation ensure that it complies with relevant legal and regulatory requirements and it can also improve stakeholder’s confidence and trust in your performance.
The Australian Stock Exchange (ASX) highlights that a listed entity should establish a “sound risk management [framework]”, as a failure to recognise or manage risk can adversely impact not only the organisation but also many other stakeholders. This can include employees, customers, creditors, suppliers, consumers, taxpayers and the broader community that the entity operates. These same principles apply for all businesses no matter how big or small.