Q&A: Why Is File Management so Important? Plus Benefits

Updated June 24, 2022

There are many methods that a company might use to improve its organization and efficiency. One such method is file management, which allows a company to store its files in an organized manner and ensure organization and productivity. If you believe you or your company would benefit from additional organization, you might consider implementing a file management system to store and organize your documents. In this article, we discuss what file management is, why it's important, its benefits and the key components of effective file management.

What is file management?

File management is the process of naming, storing and organizing files in a system or program that makes it easy to locate documents. Most companies use a digital form of file management, but physical file management remains beneficial for certain companies. Organizing files digitally is helpful because many systems offer the option to organize files for you, making it easier and quicker to store and locate documents. Digital file management is also helpful because you and your employees can access files on almost any device, regardless of the time or place, which is especially valuable for remote workers.

Companies usually organize their files in a hierarchical system, meaning they use secondary folders, or sub-folders, for further organization. Within your main folder, you might have multiple sub-folders that contain different categories of documents. For example, you might have a main folder for taxes and sub-folders for taxes in a specific year and other specific tax forms.

Related: Documentation in the Workplace

Why is file management important?

There are many reasons why it's important for a company to use an effective file management system, including:

Improved organization

Regardless of the size of a company, most organizations have plenty of information to store, including employee, product, inventory and financial information. File management can help store, retrieve and share information within an organization. For example, a company can store many files in one folder, which decreases the amount of clutter within a digital storing system.

Related: 7 Steps To Organize Your Paperwork and Declutter Your Desk

Centralized document location

Having all of your company's documents in one centralized location can simplify the process of retrieving documents. Rather than examining hundreds of files, an employee can search for a folder name and easily find their desired document. This simplifies document organization as opposed to storing documents in multiple locations, such as email threads, personal computers or flash drives.

Increased efficiency

Time management and efficiency are essential components of a company's productivity. File management increases efficiency by reducing the time employees require to find documents. It also reduces the time spent recreating files if an employee can't find an original document. Even though retyping a document may only take a few minutes in some instances, this wasted time can become problematic if repeated multiple times in a workday. File management ensures that employees can remain productive and avoid repeating tasks.

Enhanced communication

Many file management programs include helpful communication tools such as chat boxes, tagging systems and the ability to comment on documents. This is important because employees can ask one another questions about certain documents or comment on mistakes within a document. Through these tools, employees can usually edit documents collaboratively and, therefore, understand why a team member made a certain change or suggestion.

Related: 10 Document Collaboration Tools for Your Team

Reduced filing errors

File management can reduce the number of filing errors your team experiences. If a company stores its documents physically, an organized filing system is necessary to avoid misplaced documents. Misplacing documents can also occur digitally, especially if an employee names or organizes files inaccurately. A file management system reduces errors by offering clarity and guidance when searching for files.

Controlled access

Information access is important because it ensures that employees can access necessary documents to perform their tasks. Information access also helps companies control which people have the ability to view confidential data. Many digital file management systems have locks or controls that grant access solely to employees who need certain documents to work. If they require access to a certain document they're locked out of, they can ask their managers to grant them proper access.

Benefits of file management

Here are some benefits that an effective file management system can offer companies:

Standardized processes

Standardized processes are beneficial for a company because they can reduce mistakes and increase productivity. File management can help standardize a company's processes by ensuring that everyone knows how to store and retrieve documents in the same way.

Related: How To Become a Successful Document Specialist

Reduced emails

Many companies use email to communicate, which can result in large numbers of messages that clutter employees' inboxes. Having an effective file management system can reduce the number of emails sent because employees have access to the same documents and understand how to retrieve the documents they require.

Increased accountability

Companies can also increase accountability through effective file management. For example, if an employee makes a mistake on a project, their manager can help identify what went wrong by viewing relevant documents together. This can help employees learn from mistakes and improve their performance in the future.

Improved security

Misplaced files can lead to security issues for companies, especially if an employee accidentally stores an important document in a public forum. File management can help increase security by creating folders in which employees can easily store documents. If an employee knows exactly where to place files, it can reduce the chances they place them in an incorrect folder.

Components of effective file management

File management can help a company increase its organization, but to accomplish this, it's important for employees to know the components of an effective file management system. Some components of effective file management may include:


When you're creating or organizing your file management program, it's important to be consistent with the locations in which you place your documents. This entails creating a system for your file management methodology and remaining consistent with it. For example, if you make a folder for your company's finances and title it "finances," but later, you create a similar folder and label it "budget," that might cause confusion among employees, especially if you put particular files in the first folder and others in the second.

Number of folders

An important component of file management is understanding the proper number of folders you and your company require. If you have too few folders, your employees might have to sort through many documents within the few folders you have. If you have too many folders, your employees might search through multiple folders to find the file they want. Therefore, it's important for your file management system to have enough folders to encompass your documents and clearly labeled sub-folders that naturally guide an employee who attempts to find a file.

Accurate file and folder names

Effective file management often entails accurate file and folder names. For example, if your company plans on releasing the first press release document this year, it may be beneficial to label it "Press Release #1 2021" under the folder name "Press Releases." If you're clear with your labeling practices, your employees may be more efficient and productive while completing their tasks.

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