|Business edition — Blog 4|
It wasn’t too long ago that “risk” was a taboo four-letter word among business leaders — something to be avoided at all costs. Inspirational speaker Robin Sharma once wrote, “If you’re not scared a lot you’re not doing very much.” This makes justice to the business world as well. But don’t you worry guys, we have a lot tucked away in our pockets. There are risks involved in the business, we are all well aware of that fact. But yet, we have a lot to know. By the end of this blog, I intend to let you know all the factors involving risks in business and how to deal with them.
Businesses face all kinds of risks, some of which can cause serious loss of profits or even bankruptcy. But while all large companies have extensive “risk management” departments, smaller businesses tend not to look at the issue in such a systematic way.
But to start with the basics, what exactly is a Business Risk? Simply put, Business risk refers to a threat to the company’s ability to achieve its financial goals. In business, risk means that a company’s or an organization’s plans may not turn out as originally planned or that it may not meet its target or achieve its goals.
#Types of Business Risks
- Strategic Risk- Now we know every business or a startup needs a well-thought-out implementation plan. But sometimes our best-laid plans also come to look very outdated, very quickly.
This is Strategic Risk. For instance, let’s say you have a competitor in the market. This is an example of Strategic Risk in Business terms.
2. Compliance Risk- You are the boss of your business, well you think so, but news flash, the government remains above all! Compliance risk involves companies having to comply with new rules that are set by the government or by a regulatory body. For example, there may be a new minimum wage that must be implemented immediately.
3. Operational Risk- Operational risk occurs within the business’ system or processes. For example, consider the risk that one of your employees writes the wrong amount on a check, paying out 100,000/- instead of 10,000/- from your account.
4. Financial Risk- Financial risk is about the financial health of the company. For example, let’s say that a large proportion of your revenue comes from a single large client, and you extend 60 days credit to that client.
In that case, you have a significant financial risk. If that customer is unable to pay, or delays payment for whatever reason, then your business is in big trouble.
And here comes the big question, How do you manage Risks?
- Identify the risk
Undertake a review of your business to identify potential risks. Some useful techniques for identifying risks are:
- Go thorough with each function in your business and identify anything that could have a negative impact on your business.
- Review your records such as safety incidents or complaints to identify previous issues.
- Consider any external risks that could impact your business.
- Brainstorm with your staff.
2. Buy Insurance.
Determine insurance needs and obtain coverage. Most businesses carry liability insurance or insure the building and contents where the business operates. For example, a tile installation business should carry liability insurance in case a worker is injured while installing tile. A real estate business or legal business may obtain errors and omissions insurance policy in case a client sues for professional wrongdoing.
3. Contain the risk
Sometimes, there are risks that cannot be avoided or prevented. Companies can choose to contain said risks while putting up safety nets. For example, since all businesses need to access the internet, where hackers abound, they may put stronger firewalls and other protective measures in place to ensure their company’s safety.
4. Organise
Write a risk management plan. Separate from your business plan, write a risk management plan, which lists all of the possible risks that can affect the business. The plan also lists the steps, procedures, and ways in which the business intends on dealing with the risk as it arises. For example, if your business is located in an area of the country prone to hurricanes, then you may have a hurricane preparation plan on how you can minimize the risks associated with this type of weather to your business.
5. Update plans
Even the best of planning efforts may fall short, so when the business is exposed to a risk, react accordingly and then put a formal plan and procedure in place in case the same risk occurrence happens again.
Still with me?
Risk management is a form of insurance in itself and is an imperative step for sustainable success. There’s no doubt about it: taking risks can be scary. But when you have the ability to see the potential long term benefits and are able to prepare as best you can, taking risks can help you grow and become more successful faster. For more Business edition blogs, stay tuned. Until then!!
