Why is risk management important?

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Introduction

Effective risk management provides an early warning system for organisations in an uncertain environment. There are many benefits of effective risk management, including:

  • The reduction of uncertainty
  • Encouraging anticipation and resilience
  • Supporting the development of a strong internal control environment.

This advice sets out general advice and guidance relating to risk management which is designed for any type or size of co-operative to consider. It is supported by more detailed guidance and templates. We provide links to these resources below.

Definitions

What is risk?

  • Risk may be defined as the threat or possibility that an action or event will adversely, or beneficially, affect an organisation’s ability to achieve its objectives.
  • A risk can be something uncertain – it might happen, or it might not. A risk matters because, if it happens, it will have an effect on objectives and an organisation’s ability to meet them.
  • Risk arises as much from the possibility that opportunities will not be realised as it does from the possibility that threats will materialise or errors will be made.

What is risk management?

  • The process which aims to help organisations understand, evaluate and take action on all their risks with a view to increasing the probability of their success and reducing the likelihood of failure.
  • Risk management is the process of identifying risks to the organisation, assessing their relative likelihood and impact, implementing appropriate actions to mitigate the risk and providing assurance of this. 
  • Risk management gives comfort to members and other stakeholders that the business is being effectively managed.

What is assurance?

  • Written, evidenced-based information
  • Data, facts and figures as well as narrative, supporting text
  • It is usually provided internally to the Board from officers, members etc.
  • It can also be provided externally from auditors, consultants etc.
  • It is not solely verbal. This is an important distinction – verbal information alone is re-assurance and must be supported by some form of evidence base.

 

This resource has been written by Angela Lomax from David Tolson Partnership, Chair of the Co-operative Governance Expert Reference Panel.