Risks are an inevitable part of the business. No venture has ever not encountered a few stumbles here and there. The risks will always show themselves, and sometimes, you have to deal with them. However, there are several ways one can minimize their effects.
With a risk management plan, one not only minimizes the chance of risks happening but also their adverse effects when they do. Risk management plans aren’t just about buying insurance. There’s a lot more you have to consider to protect your business.
Core Steps of Risk Management
These steps are the building blocks of your risk assessment plan. Do them with care.
There are a huge variety of risks for your business. Some risks are easy to consider, such as natural hazards, or the financial debt. However, a few are quite stealthy, and only present themselves once they are a problem. Here’s a rundown on the important risks to consider:
These should be your priority as an existing business. Operational risks slow down and exacerbate the other risks more than any other. The cogs of a machine need to be running smoothly before you can point out specific flaws. Examples of operational risks include:
- Machine Maintenance
- Facility Security (Locks)
- Employee Errors
- Facility Hygiene
Operational risks also tend to be associated with the other risks on this list. Prioritize these in the risk identification process.
While all risks have a financial aspect, this is specifically about expenses and revenue. These manifest mostly through supply and demand. For example, too many customers buying an item is actually a risk. It’s an unknown factor if the item will be bought as much after you regain supplies. It’s a financial risk to buy more of it without proper planning.
Debts also fall under this umbrella. Debt affects all financial expenses and profit. Expenses mean your debt lasts longer. Debt means any profit is reduced by the debt’s amount. Add to that interest rates, and debts are obvious candidates for financial risks. These should be prioritized after operational risks. A lack of funds means no way to fix the other risks.
Legal risks often come around when operations and finances are not properly handled. In such a case, you need to have a foolproof insurance plan. Make sure that your business is compliant with all laws and regulations in your area. As your business grows, new laws and regulations also apply to you. Don’t brute force your way through these. Always have a lawyer on retainer to check if your business is up to snuff.
Reputation is affected most by other risks. Any risks that go unnoticed have the potential to adversely affect your business. For example, if an employee mistakenly prices an item, or worse, accosts a customer, you’ll be faced with both legal and reputational risks. They cost a lot of money and also affect the public’s perception of your business.
Now that you know what risks to look out for, it’s time to analyze them. The two main parameters should be Likelihood and Consequence. The likelihood is how likely risk will happen. While no risk is 100% unlikely, some have a much lower chance of happening. For example, a building with smoke detectors and up-to-date fire extinguishers is less likely to be affected by a fire.
The consequence is how badly the risk damages your business. For example, a fire might be unlikely, but if it did happen, it would severely cripple your business. On a scale of 1 to 10, rate both the likelihood and consequence. Multiply the numbers to get your risk rating. A fire in a building with smoke detectors and extinguishers has a likelihood of 3, but a consequence rating of 10. That means a fire has a risk rating of 30.
The best practices for lead management should aim for adaptability. After forming a risk management plan, start treating the immediate risks. Likely, there are already risks happening in your business. You need to get them sorted out. If your business is not up to fire safety laws, start complying. Each risk has its own form of treatment.
Once you have your risk management plan sorted out, it’s time to start putting prevention measures in place. Making sure your business complies with the laws is a good head start. Update your business security, both in the physical and cybersecurity sense. Ensure quality control is not taking shortcuts. Review for legal loopholes in your business. Pay all loans on time. Keep backups of data.
There are a ton of things to consider when preventing risks for your business. Each risk has its own specific measures. It’s up to you and your management team to plan around them. To learn more about the ins and outs of the business, check out our blog here!