Risk management is key to the success of your business. It ensures survival, longevity and overall safety. Entrepreneurs can draw on various strategies to make their venture risk-resistant.
Risk management is a process that finds, assesses and mitigates risks. These risks are any issues or dangers that threaten the business financially, legally, or even physically (security and natural disasters). It aims to see the unforeseen; to prevent major losses by identifying the causes of possible threats.
During the risk management process, people, technology, equipment, processes and other key areas that make business possible is assessed to find these potential risks.
Risk Management Process
The risk management process has four basic steps to it. These are Identification, Analysis, Mitigation and Monitoring.
Identification
Possible issues are identified that can cause the business to stop operation. Some of these examples include cyber security, physical security, natural disaster plans, employee health and safety risks with equipment, fire hazards, or legislative changes.
Ask yourself the following questions:
- How do people use equipment?
- What chemicals and substances are used?
- What safe or unsafe work practices exist?
- What is the general state of your premises?
- What are the accident and ill health records indicating?
- What is the impact of accidents on employees, contractors or visitors?
Analysis
The next step is to analyse what can prevent the identified threats from impacting business operations. This can be to installing good cyber security software, installing alarm systems, implementing safety procedures in the workplace and keep up to date with legislation changes.
To find solutions ask yourself what can be changed, eliminated or improved to solve the problem.
All of the risks are ranked according to severity so they can be addressed based on their threat level.
Mitigation
Mitigation starts with implementing solutions that can prevent worse-case scenarios from becoming a reality. This is the implementation phase and the step in which you will address any other related issues as they relate. For example, if implementing safety procedures when working with equipment also brings additional issues such as broken machinery to the surface, you must address that too.
Monitoring
Once mitigation measures are in place, it is important to continuously monitor your business for possible risks that may arise. As your business grows, and expands and new regulations are implemented, new risks can become apparent.
You might also find that there are ways of improving your current risk management strategies that benefit your business even more.
Risk Management Strategies
There are five common strategies for risk management that you can implement in your business.
Avoidance
As the name suggests, this strategy aims to avoid the risk altogether. This can include avoiding financial risk by investing in a new, expensive expansion, or completely doing away with dangerous practices.
Reduction
Losses are minimised rather than completely eliminated. Where certain risks cannot be avoided, businesses must aim to reduce the risk as much as possible. Working with dangerous equipment, for instance, cannot be avoided in certain industries like construction. Risk can reduced here by ensuring that workers comply with health and safety regulations, wearing protective clothing and correctly using machinery.
Risk Sharing
A burden shared is a burden halved… or a risk halved in this case. Where risks can be spread across multiple entities, this should be done. This can be done by having a rainy-day savings account, having insurance or finding multiple investors.
Transferring Risk
If risk cannot be avoided, the next best thing is to transfer it completely. Business insurance is a great way to do exactly that! Ensure assets, equipment and your facilities.
Risk Acceptance and Retention
When you have tried to avoid, transfer, reduce and share risk, that which remains is called residual risk. Risk acceptance and retention aim to prevent risks and keep them contained. This can include conducting regular maintenance on equipment and infrastructure, assessing protective clothing, and unscheduled inspections that see if employees are following protocol and understanding your financial risks.
Risk management will be a vital part of your business throughout its lifetime. Staying on top of the potential issues that may arise and prevent the enterprise from operating is key to the organisation’s ultimate success. Implement the above-mentioned strategies to protect your business.
