As a chief risk officer, Amol Sahasrabudhe understands the importance of risk management in business. Proper management allows a company to deflect the effects of uncertainty in business, ensuring it remains profitable and successful. Still, some forms of risk management, while necessary, are not as effective as others. Reactive risk management is focused on damage control, whereas proactive risk management is about prevention and stability. Each has a use, but proactive management is better for a company and its brands.
Amol Sahasrabudhe Addresses the Differences Between Proactive and Reactive Risk Management
Being reactive is not ideal for businesses; it means never knowing what is coming down the pipeline or how to interpret it. In reactionary situations, a business is always a step behind the story or problem. In many ways, reactive risk management is like firefighting, the business doesn’t step up until the emergency happens.
In hindsight, dealing with business problems after they become problems seems a bit backwards. It is always better to plan and avoid damage than to react when it occurs. That said, not every problem is predictable, meaning reacting is the only logical response.
Amol Sahasrabudhe suggests taking a second look at the firefighting analogy. A building can install sprinkler systems, fire extinguishers, new wiring, etc., to prevent a fire. Unfortunately, a natural disaster occurs or a blaze happens at a nearby business. Even with all the preventative tools in place, the building is still at risk of damage, and the only response is reactionary.
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Reactive risk management is a necessary business tool, but it is a backup to proactive and preventative risk assessment and management. Being proactive requires knowing your business, its strengths and weaknesses. It’s about reinforcing strengths and evaluating vulnerabilities.
A good risk manager knows how to review company and industry data to locate and identify issues within operations. They use their observations and research to design better strategies and processes to limit the number of negative surprises that demand reactive thinking.
Amol Sahasrabudhe and Other Risk Management Professionals Know the Importance of Reactionary and Proactive Thinking
It is impossible to plan for every problem or situation. While data and operations can help you make predictions about financial health and company performance, unpredictability is a part of business; professionals try to mitigate it as much as possible, but surprises happen.
According to Amol Sahasrabudhe, the best thing any risk manager can do is use a combination of reactive and proactive management. You plan for as much as possible using data and insight from other managers and team members, but you also develop a strategy for responding to emergencies or unexpected situations. Preparation is a crucial element of any response, even when responding to unexpected circumstances.