Risks are common in business. You can’t always remove all the
financial, material or physical risks you might face in your business, but you
can minimize the risk to a great extent through proper planning and management.
Unfortunately,
quite a number of business owners think “risk management” is about buying a
good insurance protection; they rarely consider other ways to mitigate the
risk. Well, managing a risk in business is difficult, but not impossible. Here
is a step to step guideline you can follow to develop
a risk management plan to protect your small business:
Step 1:
Identifying the risk is vital
Some
risks are common, whereas other risks are very specific that can only be
understood by the business owners. Until you know the problem, you will not be
able to create a cost-effective and proper plan. Thus, you should maintain a
standard risk checklist or database of risks that are related to your small
business.
Know the probable risks
There are many risks that can arise in a small business. Some
common risks are:
- Financial
risks
- Liability
risks
- Operational
and environmental risks
- Strategic
risks
- Privacy
and information risk
- Business
interruption loss related risk
- Injury
or accidents to employees
How can you identify the risk?
Well, this is tricky. You have to find the risk. You can follow
these methods like:
1.
Ask yourself as many “what if” questions as you can
For
example:
- What
if you get a complaint from a consumer
- What
if the machines are damaged or not accessible
- What
if the suppliers go out of business
- What
if you experience a natural disaster in your area
- What
if all the staff members resign all of a sudden
- What
if you face a major scam
- What
if your business documents are destroyed by a fatal fire
2.
Arrange a meeting with the accountant and financial adviser to know about their
perspective about risk.
3.
Maintain flowcharts, checklists and inspect whether or not the risk is
internal, external, or random.
Step 2: Analyse
and evaluate the risk
After
identifying and creating the list of probable risks, you should analyse them.
You need to evaluate the risk to your business with 2 parameters:
1. The likelihood of risk occurring
2. The consequences of risk occurring
2. The consequences of risk occurring
Now,
you need to see how likely or unlikely the problem happens. You need to analyse
the consequences how severe or low the losses are. Once you get the idea of the
likelihood and consequences of the risk, you should create a risk rating table
to evaluate it.
Doing
so will help you manage the risk and make a decision about it. To calculate the
risk rating, follow this popular formula:
Likelihood x
Consequences = Risk rating
For
example, the formula will help you to understand the likelihood of a fire is
‘unlikely’ but the consequences are ‘severe’.
Step 3: Treat
the risk
You
should find out options to treat the unacceptable risks to your business.
Remember, some unexpectable risks need immediate treatment whereas some risks
can be monitored later.
Before
deciding which risks to treat, you should gather information about them.
For
example:
Calculate the costs required for treating the risk, benefits of treating the risk, how much time is required to treat the risk, etc.
Calculate the costs required for treating the risk, benefits of treating the risk, how much time is required to treat the risk, etc.
Step 4: Review
your risk management plan
The
business environment is not static; it is changing constantly. The type of
risks and its likelihood and consequences will change. You may also face new
risk as the business develops. If you review your risk plan on a regular basis,
you will be able to identify the new risk and loophole. By doing so, you can
easily maintain the effectiveness of your risk management plan.
Step 5: Avoid
the risks
Avoiding
the risk is also a part of developing the risk management plan. If you don’t
avoid risk, then you will have to put your potential effort and time into developing
the risk management strategy. This way, you may not be able to get the
desired success. So, try to avoid risk as much as possible.
How can you
avoid risk?
Once
you find out a risk, you should try to reduce the likelihood of it to reoccur.
- Introduce
a quality control process
- Make
sure there are no legal loopholes in your business
- Manage
your business debt properly
- Provide
training to the stuff
- Keep
off-site data backup
- Value
your target audience
- Don’t
ignore a complaint against your business name
Lastly,
you can transfer risk to another party through insurance, outsourcing, joint
ventures, or partnerships. A risk related to a business can be avoided. reduced
or transferred, but you have to accept the risk first. If you don’t accept the
risk and try to ignore it, then you will have to be ready for a fatal
consequence.
So,
it is important to have plans to manage a risk; also, you need to have enough
fund to cope up with it if it occurs. By doing so, you will be able to run your
small business successfully.
360factors’
American Banking Association (ABA)-endorsed Compliance Management Software is
a next-generation, cloud-based, highly-integrated solution for managing
governance, risk and compliance (GRC) across an organization. Predict360 helps
banks and financial services firms reduce manual effort by using its internal
logic for helping to make decisions. Its AI looks at all the patterns, analyzes
data, and learns from the system in which it is employed.
Source: 360factors
Inc
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