what risk measures needed in ensuring decisions taken in resources allocation are effective for business sustainability in management accounting?

Businesses face many risks, therefore risk management should be a central part of any business' strategic management. Risk management helps you to identify and address the risks facing your business and in doing so increase the likelihood of successfully achieving your businesses objectives.

A risk management process involves:

methodically identifying the risks surrounding your business activities

assessing the likelihood of an event occurring

understanding how to respond to these events

putting systems in place to deal with the consequences

monitoring the effectiveness of your risk management approaches and controls

As a result, the process of risk management:

improves decision-making, planning and prioritisation

helps you allocate capital and resources more efficiently

allows you to anticipate what may go wrong, minimising the amount of firefighting you have to do or, in a worst-case scenario, preventing a disaster or serious financial loss

significantly improves the probability that you will deliver your business plan on time and to budget

Risk management becomes even more important if your business decides to try something new, for example launch a new product or enter new markets. Competitors following you into these markets, or breakthroughs in technology which make your product redundant, are two risks you may want to consider in cases such as these.

The types of risk your business faces

The main categories of risk to consider are:

strategic, for example a competitor coming on to the market

compliance, for example the introduction of new health and safety legislation

financial, for example non-payment by a customer or increased interest charges on a business loan

operational, for example the breakdown or theft of key equipment

These categories are not rigid and some parts of your business may fall into more than one category. The risks attached to data protection, for example, could be considered when reviewing your operations or your business' compliance.

Other risks include:

environmental risks, including natural disasters

employee risk management, such as maintaining sufficient staff numbers and cover, employee safety and up-to-date skills

political and economic instability in any foreign markets you export goods to

health and safety risks