Business

Identifying and Managing Risks in Business

Complete Information Identifying and Managing Risks in Business

Identifying and Managing Risks in Business: Whatever the industry, size, or turnover, the running of a business comes with risks attached. Some of these pose the threat of closure and outright bankruptcy, while others inflict damage that can take considerable time and resources to remedy. Despite this, there are steps that executives and stakeholders can take to anticipate and preempt these threats before they come to pass, no matter the size of their company.

Risk Identification

With the appropriate preparation, businesses can negate the impact of risks on their business should they eventually manifest. For both large-scale companies and burgeoning startup ventures, risk analysis plays a formative role in the conception of business strategy. Effective risk identification is contingent on a comprehensive appraisal of a company’s specific business models. Possible threats of a strategic, preventable, or external nature can be countered through either acceptance, elimination, reduction, or transfer.

Risk Categories

Threats to a business take a variety of forms, from physical hazards and HR issues to vulnerabilities in business strategies or technological breakdown.

Physical Risks

Physical risks include fundamental health and safety concerns regarding any premises where employees operate or inventory and business assets are kept. Some examples of physical risks include building fires, chemical leaks, and unsafe working conditions. Employees need to be protected from these risks, both to ensure their health and safety in the workplace, and to limit the legal liability of the company in event of staff sustaining accidents or injury. Measures to protect against physical risks might include:

  • Implementing an emergency action plan for building evacuation that employees are aware of.
  • Signposting emergency exit routes.
  • Installing smoke detectors, fire alarms, and sprinkler systems.

Personnel Risks

Chief among personnel risks are staff who are suffering from substance abuse in or out of work, and staff who are defrauding their employer. For the former, counseling and mediation should be offered to aid them on the road to recovery. Certain business insurance plans can provide a degree of coverage to help fund any rehabilitation services.

The dangers of employee theft can be lessened by implementing verification systems for any financial operations such as cheque writing and invoicing. Your company’s accountancy department should also have diligence procedures in place to quickly identify potential instances of employee theft. Preventative measures should include a rigorous background check performed by your HR department to find responsible employees before taking on a new hire. Although a criminal background isn’t a be-all and end-all deterrent to taking on a new employee, management needs to be appraised with a full background disclosure before making a decision.

Illness and incapacitation are other common issues that can emerge with personnel. Aside from implementing adequate health and safety policy to reduce the risk of injuries in the workplace, cultivating a supplementary team of backup staff to cover absentees’ workloads can defend against lost productivity.

Technological Risks

Utility failures such as powercuts are one of the most common causes of technological risks. Depending on your industry, backup fuel-driven generators may be an appropriate purchase in such an eventuality (although such measures will be more common in sectors like manufacturing). IT failures can occur frequently in any business with digital processes, so a team of IT specialists who are actively monitoring and supporting computer systems should be working at all times. This department will also be responsible for backing up sensitive commercial data, which should be stored remotely in the cloud and on local physical drives. While external internet or telephone outages are less common, emergency cellphones or satellite communication systems can be implemented as backups if where appropriate.

Strategy Risks

Unlike the above threats, strategic risks aren’t necessarily undesirable in business. They will often be built into a business plan as a requisite component for a company striving for success. Sectors such as banking and insurance are fundamentally contingent on strategic risk, so these businesses accept risk and bake risk management into their business models accordingly. 

Any business venture carrying high economic or financial risk exposure needs an infrastructure that can weather the impact of risks. Such measures might include:

Once potential risks have been discovered, they need to be prioritized according to their likely frequency and overall impact. Risks that are highly likely to emerge need to be planned for immediately, but less likely hazard scenarios shouldn’t be neglected at their expense. Insurance is a business’s greatest resource against risk. Physical threats like building fires are a de facto candidate for insurance policies, while a business with inventory should seek product liability coverage. Commercial insurance policies are also available to cover eventualities such as staff fraud and embezzlement. 

When considering insurance policies, it pays to plan for the worst-case scenarios. Regardless of how long a member of staff has occupied a position, employee error or malfeasance can occur at any time without prior warning. Depending on the scale and nature of your business, employing the services of a professional risk management advisor can help you draw up a comprehensive risk prevention strategy.

Preventing Risks

As they say in medicine, “prevention is better than cure”. This goes doubly for business, as preventative measures are almost always cheaper than countering risks that have already become a reality. Risk prevention can be implemented with:

  • Targeted training for employees
  • Health and safety policies
  • Equipment checks
  • Workplace inspections

A risk assessment manager should be employed in-house or contracted to make a thorough review of all policies before they’re brought into force. Emergency plans must be developed and employees should be regularly drilled on them with dry-run scenarios. Risk assessment should be an ongoing process rather than a passive strategy that’s sporadically attended to.

Final Thoughts

Business risks are numerous and can result in everything from legal action to bankruptcy. However, businesses that prepare for the worst can limit their exposure to the most common kinds of threats and enact policies that reduce damage. Staff training and risk management consultancy should be at the core of risk prevention policy and form a prerequisite element of effective business planning.

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