In this article, we are discussing risk management. Now this is a very broad topic, as evidenced by the quantum of research and findings being produced. Rightfully so because everything that has worth, also has its risks. In due course, we’ll also look at effective methods to assess your company’s risk exposure. My aim is to present a different perspective, and I hope this impacts every reader enough to enable them make the necessary transformation in their entrepreneurship adventure. So next up risk management and its benefits
Risk Management Concept
In business terms risk is defined as the possibility of financial loss. Therefore risk management is the practice of using processes, methods and tools to minimize exposure to financial risk. As entrepreneurs, we get constant reminders of the ‘risks’ in running a business and how a stable job is a better (safer) option.
Anything that can go wrong will go wrong ~ Murphy’s Law tweet
Thus, I believe we all understand the path we chose and the consequences but this article is more about improving our chances of success. I suggest you make this central to your business strategy ensuring it is imbibed in all your functions within the firm. Outlined as follows are the potential risks that you and your team should look out for if you haven’t already done so.
Types of Risk Management
In a true sense risk is potentially inherent in everything. But for this article, we are only going to focus on the types of risk that can pose a major threat to businesses. As you read through, you will observe that these risks can be further classified as either internal or external risk. I have simply highlighted them based on keys sectors within a business as follows;
Strategic risks can come from the change in dynamics in the industry. Either as a result of customer demands, mergers and acquisition, disruptive innovation etc.
This relates to the introduction of new legislation that could potentially disrupt your business. More especially if your business in is in the health industry which constantly reviews compliance guidelines.
I am certain we are quite familiar with this most especially the management of cash flow. Effectively monitoring major loans and their interest rates to ensure adequate payment to prevent foreclosure. Also foreign exchange can be a hassle especially if you operate between different countries.
Operational and Human Resource Risks
For example you might be dependent on a particular supplier and all of a sudden they went out of business. A major threat is if your rely on contractors for some key functions. Outsourcing your core functions can prove to be very risky.
Environmental and Safety Risks
As obvious as it seems I assure you it is worth consideration as we just experienced flooding during the weekend. This involves the safety of your employees in the work environment and access to medical care.
Technology and Security Risks
Cyber attacks are on the rise as an increasing number of devices connect to the internet everyday. This is a potential threat you cannot ignore.
Risk Assessment and Evaluation
Risk Assessment tools and techniques
- Information Gathering
- Checklist Analysis
- Brainstorming and Assumption Analysis
- Diagramming Techniques
- SWOT Analysis
- Delphi Technique
- Probability and Impact Matrix
In evaluation of risk, it is worthwhile to rank and prioritize them according to the most critical issues. It is also important to understand that ‘low risk’ which goes unchecked could become critical. So we should evaluate in terms of consequence and probability for each risk. Furthermore, these risks should be compared to your business plan to determine which of them will affect your objectives. The tools and techniques listed are not exhaustive and as such you have to research on those tools that suit your business. In the next paragraph, we will be discussing how to effectively manage these risks.
Effective Risk Management
When managing risk, it is necessary to be proactive as it makes the job a lot easier. One needs to set aside resources that can be used to mitigate potential risk and regularly update business continuity plans. One must also conduct a thorough review of existing processes and be ready to adapt to new ones. There are four common ways of dealing with your risks and these are as follows;
- Accept it
- Transfer it
- Reduce it
- Eliminate it
In conclusion, one must continue to monitor and learn from constant business analysis and also seeking out the experience of others. It is also necessary to adopt an insurance strategy. There are various options and products out there and you should seek professional advise. Perhaps you have insurance to the teeth, you might want to limit your liability as a sole proprietor by changing to a limited liability company. Before you commit to this I suggest you consult your lawyer. May the force be with you.
Done reading? Then it’s time to start working!