“Some risks that are thought to be unknown, are not unknown. With some foresight and critical thought, some risks that at first glance may seem unforeseen, can in fact be foreseen. Armed with the right set of tools, procedures, knowledge and insight, light can be shed on variables that lead to risk, allowing us to manage them.” – Daniel Wagner
Many people dream of setting up their own business. Who can resist the idea of being your own boss, choosing where you work, what you do and how you do it? Being master of your own destiny? It’s rather romantic really. So why don’t more people do it? Well mainly because it’s risky. As a business owner, risk is just a part of everyday life. Pretty much every aspect of your business contains risk. Every decision you make holds risk.
In this blog, we want to guide you through the choppy waters of business risk and show you how you can run your business in a way that protects you and allows you to manage your risk successfully.
What types of risk face your business?
Let’s start by addressing the different types of business risk out there. Not all risks should be managed or treated in the same way, so it’s key to understand what type of risk you are dealing with before you consider how to deal with it.
This includes any risks to your employees, buildings and assets. Common physical risks that your business might face are fires, water damage and theft or vandalism. Physical damage will result in repair or replacement costs and can also lead to legal costs if you are found liable in some way.
Examples of Physical Risk Management
- Install safety features such as fire and smoke alarms, sprinkler systems and fire escapes
- Ensure that you and your staff know where all the exits to your buildings are
- Practice fire drills to ensure everyone knows what to do in the event of a real emergency
- Take out insurance
- Increase the safety of your buildings through burglar alarms and security guards
Every business decision holds some strategic risk. You make decisions which are designed to lead you closer to your business objectives, but there’s always a risk that they won’t. This might be because the decision itself was the wrong one but could also be due to poor execution, lack of resource or changes in the business environment. This in turn can lead to a number of things such as loss of profit, poor cash flow, missed deadlines or low sales.
Examples of Strategic Risk Management
- Conduct regular competitor analysis
- Base decisions on robust research and figures
- Set clear goals and key performance indicators (KPIs)
- Identify potential risks in advance
- Establish key risk indicators (KRIs) and tolerance levels before action should be taken
Every business is governed by some form of legislation and regulation. The possibility of failing to adhere to these rules and guidelines equates to compliance risk and of course can lead to fines, prosecution and reputational damage.
Examples of Compliance Risk Management
- Staffing – ensuring you have specific roles in place to manage and enforce your business compliance
- Stay on top of new legislation and plan in advance how you will comply and what the impact on your business will be
- Staff training and creating a culture of compliance within your business
- Ensure you have the appropriate analytics and processes in place to monitor your compliance
Your employees themselves can create risk to your business through a number of ways. Their behaviour in the work place can create risk if they are incompetent or non-compliant, while their behaviour outside the workplace can also impact, for example, if they are misusing drugs or alcohol. Businesses must also protect themselves against the risk of fraud or embezzlement.
Examples of Human Risk Management
- Robust recruitment process and background checking
- Clear succession planning
- Rigorous staff training
- Performance Management
- Confidential Staff Support Network
Technology may be the cause of some of the most common risks we face in business. These risks can range from anything as basic as a power outage through to hardware and software failure, malware and cyber-attacks. Such risks can lead to loss of time through systems and equipment not being in working order, loss or corruption of data and in some cases data breach.
Examples of Technology Risk Management
- Ensuring back-up power sources are in place
- Putting staff and processes in place to ensure technology is kept up to date and in good working order
- Installing anti-virus and malware software
- Creating a data breach plan
There are a number of different ways that a business can face financial risk. Some may be internal and others may be driven by external factors such as fluctuations in the financial markets or exchange rates. Non-payment from clients creates financial risk, as does poor financial planning and projection. These risks can lead to loss of income and to a negative cash flow, which if serious enough, can mean an end to your business.
Examples of Financial Risk Management
- Financial planning and projection
- Robust reporting and analytics to monitor success
- Putting credit control processes in place.
- Credit checking prospective clients
Experian Business Express allows you to check potential clients’ credit status before you work with them so you can make sure that you only work with clients who are most likely to pay you – and pay you on time.
The Importance of Risk Management
As you can see, business risk is rife, and left un-managed your business may at best lose income and reputation – at worst, it may fail completely. By identifying the factors which put your business at risk and planning for them in advance, your business can pro-actively prepare for anything that comes its way!
How to Create a Risk Management Plan
If your business doesn’t already have a risk management plan in place, then here are the basics you need to create one and to start tackling your business risks head on.
Step 1: Identify Potential Risks
Spend time identifying the specific risks faced by your own business. While some risks are universal, others may only apply to certain sectors or demographics. Involve key stakeholders from each area of your business to ensure that every aspect is covered.
Step 2: Conduct Risk Analysis
Once you have identified your business risks, you will need to analyse their potential impact and their likelihood of occurring. This will help you to classify and prioritise which risks to treat as urgent when it comes to planning any preventative measures.
Step 3: Identify Warning Signs & Agree KRI’s
A key part of preventing risks from occurring is to be able to spot when they’re about to happen. Identify any triggers or warning signs for each risk and ensure that these are documented too. At this point, you should also agree the stage at which further action is required once these warning signs have been identified.
Step 4: Identify Preventative Measures
Of course, no risk management plan would be complete without identifying measures that you and your business will take in order to prevent the risks that you’ve highlighted. Using the analysis that you’ve completed and the KRI’s you’ve agreed, now it’s time to actually plan how and when you will put preventative measures in place.
Step 5: Assign Responsibility
Lastly, each risk that you have identified should be assigned an owner. Usually, the owner will work in whichever area the risk most relates to and they will be accountable for ensuring that any processes laid out in the risk management plan are carried out. They will also be responsible for maintaining records and analysis that can be used to regularly review the risk and its priority in the plan.
In a risk filled business world, your business can continue to progress in confidence by putting these measures in place. Don’t forget, Experian Business Express are here to help!