Most often, entrepreneurs and other small business owners think that only large businesses and multi-national corporations should be concerned about the subject of risk management. However, this is a very wrong notion as the impact of a risk exposure can be more fatal to smaller businesses than large ones. Remember that the large businesses have deeper pockets and can afford to write off big amounts as “extraordinary occurrences”.
This week, I wish to share simple tips that can aid with the management of risks faced by small businesses. Generally, risk management refers to the practice of identifying, understanding and mitigating occurrences that can prevent the achievement of business objectives. Thus, the most important thing is to have a clear understanding of what risks your business might face.
Understanding the Risks in your Business
On a general note the key risks faced by most businesses (regardless of size) include operational risks, credit risks, reputational risk and market risk. At a more specific level, this can include employee medical risk, IT risk, travel risks etc. The key to this understanding is to review all possible areas and identify the things that can affect business objectives. This process is referred to risk identification and assessment in the corporate world. “Assessment”, is used here because the business process owners usually go on to assess the identified risk in terms of its possible impact and likelihood of occurrence.
Simple Risk Assessment for Small Businesses
To achieve this in a small business setting, it would help to sit with your overall team, even the janitors and doormen in your employ and go through a structured way to identify all possible risks. Remember, during this process, no risk identified is stupid. After taking down all the possible risks, you can then rate it on a scale of 1-10 via voting to determine the risk impact and its likelihood. Naturally, the high risks will be at the top and vice-versa for the low risks.
Designing Mitigation Strategies
After identification and assessment, the next thing will be to decide which risks (usually the top 5, 10 or 20) to focus on. You cannot focus on all risks and should structure the mitigation process in a way such that the effort to be put in will not be more than the benefits to be derived. This is very key. All members of the team can contribute to suggestions for the mitigation strategies. Though, it is usually helpful if you get an external consultant at this stage, because they are independent and can come up with different and better ways of managing your business risks.
We will be glad to hear your feedback on how this helps and give your further suggestions at a more specific and personal level if you desire.