Business Risk management should be compulsory for every business.
Business risk management is an essential factor in any successful enterprise, at any stage in a company’s journey, and most especially in the current economic climate.
The last three years have been some of the most tumultuous in British business history.
Business has had to deal with:
- The impacts of COVID and lockdowns
- The war in Ukraine
- The energy crisis
- The emergence of AI
All of these events and the corresponding impacts could and should have been identified as potential risks before they happened. Some of them, we were better informed about, but not one of them happened instantly.
As a country and humans, we expect our government and institutions to plan in advance, to mitigate our risks of existence, survival, and growth.
It is no different for an individual or leader of a business.
We are not fulfilling our roles if we are not assessing the risks to ourselves, our family and our business, plus developing plans and mitigation actions to protect them all.
What Types Of Risks Are There In Business?
There are two main types of risk in business;
- Risks that are clear and evident that you can truly or partially protect your business from, e.g., loss of key personnel, loss of large clients, serious H & S accidents, death, bad debt, and export risks.
- Unknown risks that you can forecast and mitigate to some degree, e.g., pandemics, supply shortfalls, climatic intervention, and significant political changes.
What Is Business Risk Management?
Risk management is the process of identifying, assessing, and mitigating any potential risks that could impact your business.
It involves understanding all potential threats to each part of your business, evaluating the likelihood and potential impact of each risk, plus developing strategies to mitigate the risk happening and reduce any impact should the risk occur.
Whilst risk management is mainly focused on potential negative interventions, it also drives valuable insight and foresight into your business, just like a good audit.
Business leaders need to embrace risk management as a valuable tool to drive growth and improvement that will enable the future success and sustainability of their business.
What Are The Benefits Of Risk Management?
- Protection against commercial risks.
- Commercial income loss or late payment.
- Reputational or brand damage
- Intellectual Property rights (IPR) or Copyright abuse
- Business and personal liabilities.
- Increased business resilience:
- Loss of key personnel
- Death of shareholders, directors, or both;
- Process breakdown
- Customer relationship breakdown
- Supplier failure
- Better employee safety and security
- Exemplary Health and Safety processes and adherence.
- Working environment security
- Late night safe working
- Acceptable behavioural policies on working sites.
- Improved decision-making:
- Improved commercial judgment – the risks or trade-offs been decisions can better understood with effective risk management,
- More commercial opportunities for growth – new contracts can be bid for with appropriate risk cover,
- A mindset of continuous risk management means ongoing risks like cyber security are actively managed and not a new risk with every new change or initiative,
- Business confidence. Leaders and employees like to work in an environment where their risks of survival and growth are well managed.
- Cost savings:
- Fines for inappropriate risks and breaches
- Legal fees
- Costs to restore reputation and brand value.
- Competitive advantage:
- Some tenders require evidence of risk management in place.
- Pre-emptive risk avoidance or risk management means your business is not as badly affected as others if risks occur.
- Being fleet of foot when risks occur means you are the best to react and recover and grow.
- Businesses that can demonstrate an investment and commitment to risk management build more trust and loyalty with customers, investors, and other stakeholders.
As you can see, the benefits of risk management are immense, and it is really not that hard to start and implement.
How Do I Implement Risk Management?
A few simple steps to start managing your commercial risk.
- Identify the potential risks to your business;
- Financial – non-payment, bad debt, credit withdrawal etc.
- People – accidents, illness, poaching, moving or even death.
- Operations – key processes, production, faults, accidents, extended liabilities.
- Supply – components, materials, or people.
- Legal – prosecution, breaches, liability.
- Reputational – service, incident, behaviour.
- Crisis – weather, disease, strikes.
- Assess the potential impact on your business;
- Significant, moderate, or insignificant
- Weeks, months, years
- How likely is the risk to happen?
- Identify what actions you can take to mitigate the risk in advance, completely, or partially.
- Insurance, factoring, alternative credit, debt management.
- Process alternatives, alternative supply, resource pools.
- H&S improvement, people retention strategies.
- Emergency processes and procedures
- Crisis management plans
- Alternative business models.
- Prioritise your risks.
- What are the most likely to happen with the most significant impact?
- Develop a prioritised list of every risk you know of.
- Actively manage the risks to your business
- Manage the most significant risks weekly – personally, I always advise clients to manage customers, H&S, income and cash weekly.
- Ensure you have good measures to indicate any increase in the likelihood of the risk occurring (leading indicators) and also measures of whether the risk occurred (lagging indicators).
- Review the likelihood, potential impact and your mitigation plans for every risk every month. Believe you me, this is not overkill, just due diligence and attention to the risks to your business and people.
- Develop risk management understanding, mitigation, and assessment skills across your business.
- Stay up to date with industry trends and best practices.
- Challenge and explore new strategies or technologies.
Conclusions On Risk Management
- Risk management is not just about avoiding risks, but about being prepared for them and using them as opportunities for growth.
- Rubbish happens, we are living in much more risky times.
- It is not difficult to establish and actively manage the risks to your business. You owe it to your business, your investors, and your people.
- Actively managing the risks to your business will give you a much more confident platform to develop growth for your business.
- Every business needs to actively start managing its risks now.
I hope you found this article interesting and useful.
Wishing you and your business all the very best to start managing your business risks effectively and with positive results. As an experienced business coach and business consultant, I can help you manage your risks and devise the best strategies for growth and success.
If you would like to discuss or develop your business risk management or enjoy the benefits of expert business growth coaching, please get in touch at email@example.com