By Hannah Corbett
Risks come in many forms and are inevitable in every business. In addition to growing a company and ensuring smooth operations, it’s the job of every business owner to protect their firms from danger and harm.
There are multiple ways to counter the threat of business risks, which all fall under the practice of risk management. While it may be impractical, or even impossible, to protect against every single potential risk that's out there, it is up to business owners to account for as many as they can, and to be as prepared as possible.
What Is Risk Management?
Risk management involves predicting which risks your business may be vulnerable to, determining how big the threat of these risks is, and subsequently putting a number of preventative and impact minimization procedures in place.
Usually, it is not realistic or cost-effective to aim to address every single risk your business is exposed to, as there will likely be hundreds. Prioritization is an essential part of risk management. You should prioritize the risks that have the highest probability of occurring, and those that would cause the biggest impact.
Why Is Risk Management Important?
Risk management is important in order to minimize any damages or expenditures should a risk affect your business. It’s highly unlikely that your business won’t ever be affected by an unexpected incident, so risk assessment should be important to you, no matter your industry.
There are three main reasons why businesses practice proper risk management:
1. Safety – The main purpose of risk management is to ensure safety; for you, your staff, your customers, your building, contents, stock, products, ideas and other assets.
2. Performance – Risk management reduces the number of unexpected shocks, and reduces the amount of time and resources it takes to deal with them; improving efficiency.
3. Costs – The cost of your business insurance is likely to increase the longer you are in business, and proper risk management can help to lower your insurance premium.
These three factors are relevant in terms of individual projects, events and campaigns, as well as your business as a whole.
What Are the Benefits of Risk Management?
You’re probably beginning to understand the benefits that come from having risk management strategies in place; it’s all about being prepared. And no doubt you’ve heard the saying, "Failure to prepare, is to prepare for failure." In any case, there are a few benefits which are, arguably, larger than others. These are as follows:
Reducing cost – As previously mentioned, risk management could save you a significant amount of money in the long term, if your business was to be hit by an unexpected crisis. Even when you may have to spend on risk management, such as taking out business insurance, for example, these costs can be budgeted for and are therefore manageable. It’s definitely a preferable alternative to being surprised by a large lump expense in the future.
Reducing loss – As well as money loss, risk management reduces the loss of time and resources. Risks will inevitably happen – you cannot prevent them all. What you can do is be prepared for when they come. You can minimize the impact of unforeseen issues by ensuring you and your staff know exactly how to deal with them. It will take less time and staff hours to reverse any negative effects, and will use less of your resources.
Allowing growth – Being prepared and able to properly manage these types of situations allows your business to more easily overcome obstacles and grow. If you are constantly having to deal, unprepared with correcting the impact of unexpected incidents, it’s unlikely that you will be able to focus your energy and money on growth and expansion.
How to Perform Proper Risk Management
There are a few main steps every business should take to practice proper risk management. It's likely, however, that there will be variations of the steps between different businesses.
Step #1: Identify
The first step of any risk management program is to identify the risks and threats posed to your business. Risks can come from a number of places, so it’s important that you consider every possible angle. Here are a few of the more common types of risk and their effects:
Step #2: Assess
The next step is to assess the risk and the level of the threat, i.e. how likely it is to happen. This is part of the prioritization process in which you only prepare for risks that are the most relevant. A good way to put this into perspective is to consider the likelihood of the risk occurring and the scale of the impact it would have. If either the likelihood or the impact is quite high, then it’s probably a risk that you should prepare to deal with.
Step #3: Control
The next step is putting measures in place to deal with the impact if the threat were to happen. This could be a matter of improving security measures, taking out insurance for financial security, or running a workshop to teach your employees on actions to take. It may help you to assign leadership roles and responsibilities to certain staff members in the event of a crisis to ensure organization and efficient recovery.
Step #4: Maintain
This is possibly the most important part of risk management; if not done properly, you could undo and void all of your previous work. Maintaining risk management to a high standard and keeping it up-to-date is essential. There is not much point in putting time and effort into identifying and assessing risks, and putting control measures in place, to then fall slack in practice or implementation. You must also remember to re-evaluate each time your business changes significantly, or if you think there could be a change in the threats your business is exposed to.
It is worth remembering here, that you do not have to do all this alone. If you have never carried out a risk assessment or managed your business’s risks before, then it may be better for you to employ a risk management professional to do so for you. Many businesses choose to employ risk managers to ensure a complete analysis and thorough protection.
To conclude, risk management is something that a business would be foolish to neglect to do. Some threats have the power to bring a business to its knees, or close it for good. There are a range of risk management techniques that businesses can use, many of them very simple. Risk management cannot eliminate risks completely – nothing can. Your business will always be under potential threat from something or other; that’s the nature of business.
Risk management helps you to prepare for a crisis, minimize the impact, deal with the effects, and better utilize your resources and finances in doing so. All businesses are different and dynamic, and each of their respective risk management plans should reflect this.
