Risk Management for business
Risk management is important for every business. Every business will face risks that could affect their success. Often the approach of an entrepreneur is to get things done quickly. A Quick Start approach. This can mean that some risks are overlooked until they rear their ugly heads. What is needed is a balanced approach that gives time to evaluate risk. For those interested in a detailed understanding of risk and its management click on this LINK. A study by CASS business school looks at the implications of not managing risk in business. Click this LINK to see the full report.
So what is risk? Risk is the probability of something happening and its related consequences. Once a risk is identified the consequences should to be evaluated and quantified. Effective risk management is an ongoing process and is at the heart of strategic thinking. A quarterly review of your risk register by senior leaders and managers is a good place to start. A risk register is simply a document that contains all your risks. It’s a good idea to rank your risks in order of importance and urgency.
Risk Management Categories
Business risk can be categorised in the following headings. These headings can be sub categorised depending on what is appropriate for your business.
- Financial risk – this will include the financial systems you use. The nature of your business transactions. The financial structure of your business. E.g. lack of financial planning.
- Compliance risk – the need to comply with the law relating to your sector and business. E.g. health & Safety law.
- Operational risk – associated with your business administration and business operations. E.g. failure in a manufacturing process.
- Strategic risk – this relates to the specific risks of working within your business sector.
- Environmental risk – these are things that are out of your control e.g. natural disasters, legislative changes, and global economic failures.
It’s essential to do some stakeholder analysis. Identify their interests and control over your business. A simple way to identify risks is to ask the “What if” question. E.g. what if climate change affected my business? What would be the impact? Can I do anything to manage this particular risk?
Ways to deal with Risk
Once you have identified risk it is useful to rank them in order of priority. Deal with them in terms of being urgent and important. There are now four things that you can do.
- Accept it – maybe because the costs of doing something far outweigh the financial impact of the risk.
- Transfer it – you can do this by having legal contracts in place that pass on the risk. You can take out insurance.
- Reduce it – again this could be done with legal contracts with suppliers or by introducing safety measures.
- Eliminate it – this may be achieved by changing your process of production or service delivery.
The above is a basic summary. The links above give more detail that will help you create a risk management process for your business. Contact us if you would like one of our part time FD’s to help you assess your risks and create a risk management process.