Risk Management for Small Businesses
Risk management isn't just a buzz word, nor is it something only big businesses need. Risk management should be part of every organization's ongoing business planning process.
Why? Because businesses are now exposed to many more risks than in the past in the form of legal risk, technology risk and economic risk, to name but a few. Understanding the potential impact these perils have on your business is a necessity in today's business environment.
What do we mean by 'risk' here? Risk is the chance that an action or event will adversely impact your business. Risk management is a systematic process you put in place to help minimize the consequences of any adverse event. It's a way of identifying, analyzing, monitoring and managing activities or occurrences that have the potential to damage your operations.
It's important to develop a concrete risk management process as part of your business's day-to-day operations. This usually starts with your business plan. Most business plans contain a SWOT (strengths, weaknesses, opportunities and threats) analysis.
This identifies risk and is the first step in any risk management framework. Once you have identified your risk you can develop a risk profile, which outlines potential risks to which your business is exposed. Businesses can't completely eliminate risk - for example, it's impossible to completely avoid IT risk. But what you can do is work out which risks you are prepared to expose your business to, and what you can do if these dangers become reality.
This is why managers need to work out the risk tolerance zone or the extent to which the business is prepared to be exposed to danger.
When you know your potential risks, you can start developing risk minimization strategies. This might involve things like ensuring you have strong firewalls in place to reduce the chance of your computers being exposed to viruses and hackers.
It might also include ensuring you have the right insurance cover if, for example, your business was destroyed by fire. A written action plan including a timetable of activities that will help reduce risk is usually part of a risk minimization strategy.
Developing a culture that encourages team members to report potential business risks also goes a long way in helping to reduce risk.
Make sure you nominate someone to be the champion of the risk management process and encourage other team members to go to this person if they believe the company is at risk in any way. Also put in place clear reporting frameworks so that your risk management system is clearly documented.
Bogged down in the day-to-day, it's easy for small business owners to ignore risk management. But this is a false economy.
In reality, most businesses can't afford NOT to have a risk management strategy. For advice on assessing your real risk areas and your exposure to damage and loss of earnings if things go wrong, ask about our risk assessment and prevention services. |
