Risk is an enemy to progress. Sadly, every business opportunity comes with some form of risk, and the better the rewards, the higher the stakes. For instance, the digitization of small businesses diversifies their market risk but comes with the threat of cyber-security.
55% of respondents to a cyber-security survey said that their businesses had experienced some form of cyber-attack in 12 months. However, this doesn’t mean that business owners need to forego opportunities. Instead, refining their business ideas in a way that they can co-exist with risk, or eliminate it, is the way forward. With a unique risk management approach, it becomes quite easy for business owners to achieve this.
Here is how to best manage risk:
Identify the Risks
Threats come in all forms, including environmental risks, market risks, economic risks, regulatory risks, and legal risks. To ensure that they are on the right track, business owners need to identify the risks in the different parts of their business.
Ideally, it will be wise to start with the extremely vital parts of the business and shift to the trivial parts. Look into the risks around your customer data and the core values of your business. For instance, the risk that you might lose a good chunk of your market share should be eliminated as soon as possible.
You can use several ways to identify risks, including brainstorming, market research, and speaking to experts. While the initial work of risk identification might feel overwhelming, the rewards are invaluable.
Analyze the Risks
Once you have a list of the risks that your business is exposed to, you need to identify their impact, including how it interrelates with other business processes. You need to understand if the risk is only but minor or it might impair your entire business.
For instance, in the world of insurance, the aim is to ensure that the business remains borderline risk-free while offering their services. Such business owners need to create insurance company risk management policies that detail how certain risks will affect their compliance, policies, and customer services, among other aspects of the business. The more detailed your risk impact can be, the easier it will be to rank risk.
Rank the Risks
A detailed risk assessment matrix will help you to determine which risks will need the intervention of the C-suite managers, and which ones won’t. In case a threat is only a mere inconvenience, it can be eliminated at the operational level of the business. On the other hand, a threat that will impair your business, such as a change in the market preferences, should be investigated by top executives.
In a world saturated with risks and limited resources, ranking risks will make prioritizing the treatment of the risks easy for you. For instance, you can ignore low severity risks and proceed to deal with the medium and high severity risks.
Treat the Risk
While some risks are worth taking on as a business, others might only end up being too much of a threat. As a result, you need to be quite picky when it comes to how you choose to treat risk. You can:
- Accept the risk– low severity risks might have a trivial impact on how your business functions. For instance, losing an employee due to conflicts of interest might be a risk worth accepting. These are risks that you that will barely change anything for your business.
- Mitigate it– this is for acceptable risks that have a significant impact on your business, but you can easily reduce. For instance, you have to accept the risk of cyber-security when digitizing your services, but it is only ideal to look for ways to minimize the impact.
- Avoid it– some high severity risks might be too threatening to your business, or the returns they bring in might be trivial in comparison to the risk. For such risks, it might be easier to steer away. For instance, investing in a state-of-the-art ERP system is inviting, but it shouldn’t mean doing away with half of your workforce.
- Transfer it- this treatment option is reserved for risks that would be too big for your business to handle. The trick is to transfer the risk to other companies that are better enabled to handle it. For instance, it can be stressful to run a data center in-house, which makes using cloud platforms ideal.
Monitor and Review the Risk
Risk is dynamic, and today’s risk can grow into an even more significant threat. Additionally, the inclination of your business towards certain risks might also change with time. As a result, your current risk treatment practices might not suffice in the future.
From time to time, you need to assess your risk landscape to both identify new risks and ensure that the current treatment practices are still feasible. In some cases such as cyber-security, you might need to monitor risks continuously, and tools like application and log monitoring tools can be pivotal.
Great rewards come from great risks, but only those who manage to tone down the risks can genuinely enjoy the fruits. Walking the risk management path will help you identify and deal with risks in the right way. Be sure to keep on updating your risk treatment policies to keep threats away from your business.