Let us begin with understanding risk. Risk is generally defined as “the exposure to harm, danger or loss”. In business, risk comes in various forms, but it always does. And it poses threat, too. The extent of damage (literal or potential) may vary, but the threat is quite real. Some types of risks can be avoided, whereas others can be prepared for. Preparing for risks can prove to be beneficial to a business, irrespective of their size, market position or industry served. Understanding the type of risks, and knowing ways to avert them in advance, can save businesses from succumbing to the peril they bring with them.
Let us understand the process of mitigating risk, briefly.
Identify Risk
Imagine being aware of a risk long before it poses a threat in your company’s face. Yes, that’s how Batman feels after saving Gotham City. But in our case, it would all be very real, not fictional.
Risk Management is an important part of an organisation’s strategy plan. Identify individual aspects of risks which can impact parts of your business operations.
This is a critical step in evaluating steps to be taken further, to deal with the situation, should it arise. In case of new businesses, the identification step is even more important because it can prove to be difference between survival and failure.
Begin with listing all potential risks that exist in the industry you operate within. Further, narrow down a second list according to your business’ expertise.
Now let’s look at some types of risk categories which you can classify from.
Physical
A risk that has a physical nature of occurrence and a similar impact. It could include fires, chemical hazards, and toxic dust (in case of factories), or natural disasters. Such risks can harm the business output and cause concern to employee safety. Taking simple measures could significantly lower the impact they make on your company.
- Conducting regular mock drills, so the employees know what procedure is to be followed in case of such an emergency
- Displaying emergency numbers and clear ‘Exit’ signs at the necessary spots could go a long way in ensuring easy access to exit
- Installing safety measures (alarms, sprinklers)
These are the most common examples of dealing with physical risks.
Human-Related
One of the major assets of any organisation, are their employees. Hence, the term “Human Resources” was coined. But there are certain tendencies of risk that come along with this asset. Protection of finances are of utmost importance to any organisation – new or old. Hence, a thorough employee background check may very well avert the risk of most financial crimes, like embezzlement. Another risk which is quite common among start-ups is the extra cost of medical insurance, to be borne by the employer. Though this may seem like an added expense, it is a safeguard against any such shortfall in the future.
Further adding, there are human-risks which may require counselling and/or rehabilitation– disputes, addictions (drug, alcohol, gambling, etc). Yet again, it is imperative to conduct a thorough background check of the employees before letting them into the company. Regular checking on their working conditions and ensuring they have all they need to perform their duties without additional stress, may prove to the necessary transparency your organisation might need.
Equipment/Technological
In the 21st century, most organisations rely on hard equipment (computers, screens, printers, heavy machines in some cases, etc.) that are dependent on power. In case of a failure, there is a risk of this equipment crashing. Data may be lost. Hence, a backup to the power, or an alternative to mainstream power may be advised.
Technology plays a major role in driving productivity, in today’s age. As much as it is a boon, it has its vulnerabilities. For example, when a company decides to adopt a new software, the risk of extra time taken to train employees to use it, comes with it. Though the addition of a new technology may be supportive to the company’s growth, it is always beneficial to weigh the pros and cons before selecting its timing.
Financial
This is probably a risk which most of you were expecting at the very top of the list. But we save the best for the last!
Financial risks exist at all stages in the life of an organisation. Whether in the initiation phase, or the later growth stages, control over the cash flow is to be investigated constantly. Unexpected fluctuations in the cash flow are a risk worth preparing for. Having stringent policies to curb avoidable expenses, may prove to be helpful at unexpected times. Preparation against financial risks can diminish the chances of failure/loss.
Assessing Risk
Understanding risk is one thing but assessing the impact it could have on your business, is the step where an organisation needs to focus. Start with sorting risks by their chances of occurrence and then cross-reference them with the impact of threat they pose to your business. This way, not only do you prioritise risks, but also prioritise deployment of necessary resources.
In the early stages of a business, it is advised to keep a margin of unexpected occurrences and include them in your timeline towards achieving your goals.
Risk assessment must be made a part of the process of formulating short- and long-term strategies.
Managing Risks
- First and foremost, approach a consultant.
- Experts know precisely how to identify and manage potential risks, according to the type of business and industry.
- It becomes much easier for an organisation to prioritise risks.
- Consultants act as an excellent link between your business and its insurance.
- The importance of Insurance is second to none. Knowing which insurances are available for various risks and the degree of damage they can save you from, is an immense boon.
- Yet again, prioritise insurances according to the priorities of risks is advised.
In an ideal situation, companies which prevent the looming threat of risks, invest their time and efforts into individual components which lead to the success of the plan. Training of employees, conducting mock drills, installing safety measures, regular maintenance of equipment and technology, thorough background checks of employees, and hiring a risk management consultant, are some of the basic steps an organisation must take in order to get onto the path of managing risk.