If you were to look into the inner workings of a modern company, a department dedicated to risk management likely exists. Sure, new businesses and fledgling startups might lack them, but almost every mid-sized and large company understands the importance of and realities about risk management.
This is why, according to data from Grand View Research, this industry was worth over $15.40 billion in 2024. By 2033, it’s projected to hit $51.97 billion, with a healthy CAGR of 14.6%.
That said, while many founders and executives will bring in risk management firms, whether they listen to their advice is another question. The fact is that reducing risk often means listening to uncomfortable yet critical advice and insights. In this article, let’s look at a few of them.
Key Takeaways
- Risk management is an ongoing process; there is no one-size-fits-all solution to eliminate risk.
- Ignoring risks compounds issues, leading to crises that require significant financial outlays.
- Investing in risk management is cheaper than facing lawsuits or compliance issues down the road.
- Even high-profile organizations can suffer severe penalties for inadequate risk management practices.
- Leaders need to acknowledge the realities about risk management, as neglecting them can have widespread implications for their companies.
Table of contents
#1. There Isn’t One Definitive Solution to End Risk
According to WoodWing, risk management is not a one-off thing. It’s a continuous process that requires routine updates. This is the only effective way to address new threats and risks. Yet, executives dislike hearing this, especially if they hired an external team.
They get frustrated with their internal team when news of a new risk that needs to be addressed arises. “Why and how are risks still a factor?” They forget that even the best risk management strategy is not a guarantee for ‘no more issues’. Risk management is all about managing and reducing the overall liability, but there’s no real way to predict what some would call the “unknown unknowns.”
Even in companies with large risk management budgets that hire pen-testers for security and analysts to assess liability, risk remains present. Some executives never become comfortable with the realities about risk management because it’s like telling them a wound will never fully heal.
#2. Risk Compounds Each Time You Ignore It
The last thing executives want to hear is solutions that cost money. If something can be fixed for free, that’s great. However, if the solution involves investing in new security systems, things immediately slow down. While there may be legitimate concerns about the need to suddenly pay a cybersecurity firm $100,000, addressing real risks still needs to happen.
This is especially important given the rise of AI and the new risks it poses. If companies fail to take things seriously, they end up in a situation where risk keeps compounding until a crisis forces the company to release funds. This cycle of failing to take action until a disaster occurs is why so many companies are not ready for risk.
The evidence is clear. Research by the World Economic Forum in collaboration with McKinsey & Company shows that 84% of companies are underprepared for current and future disruptions. What’s more, 90% of them lacked confidence in their resilience capabilities.
If companies listened to risk management experts and took predictive action, this lack of confidence wouldn’t be so widespread.
#3. Paying for Risk Management is Cheaper Than Getting Sued
Some believe that risk management departments are redundant; that it is one more layer of bloat that the company can do fine without. This is far from the truth. The fact is that once litigation starts, it’s game over. All it takes is one whistleblower or one disgruntled shareholder to get the ball rolling.
Next thing you know, you’re being investigated for compliance violations. This gets your investors worried, your employees gossiping, and soon, partners want to have ‘talks’ about their contracts with you.
If your company operates in a sensitive sector like finance or banking, it’s especially short-sighted to underestimate the importance of risk management. The crazy part of all this is that no company is immune to these misconceptions. Even the Dutch state-owned lender, De Volksbank, was fined over 20 million euros by the Dutch central bank. The reason? A lack of adequate risk management and failure to stop money laundering.
Some might call it presumptuous to tell founders and executives to take the realities about risk management more seriously. However, the best leaders are aware that blind spots exist and welcome being made aware of them. If you’re in risk management, or if you’re in a strategic position within a company, have a conversation with decision-makers about this topic.
If it seems that they take things too lightly, point out (with tact) that the risk of not taking risk management seriously is not worth it. Hopefully, they see your point and understand that any implications affect not just the C-suite, but the entire company, and all who rely on it.
