How to Manage Business Risk

How to Manage Business Risk
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How to Manage Business Risk


Risk management has always been an important tool in running any business, particularly when a market experiences a downturn. In any economic environment, an unexpected surprise can destroy your business in one fell swoop if you didn’t have the right risk management strategies in place to prevent, or at least mitigate, the damage from that risk.

External risks are out of your control. These include, but are not limited to, interest rates, exchange rates, politics, and weather. Internal risks are in your control and include information breaches, non-compliance, lack of insurance, growing too fast, and many more.

Entrepreneurs are defined by their willingness to risk management particularly the risk of business failure. This is especially true for those starting new companies because more than half of startups fail within the first five years.


Risk is an inevitable part of the business. Risk is something that all businesses need to be aware of and manage it carefully.

The following are some of the areas that business owners can focus on to help manage the risks that arise from running a business.

What is a risk?

A risk can be defined as an event or circumstance that has a negative effect on your business, for example, the risk of having equipment or money stolen as a result of poor security procedures. Types of risk vary from business to business.

You must decide on how much risk you are prepared to take in your business. Some risks may be critical to your success; however, exposing your business to the wrong types of risk may be harmful.

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Types of Risks in Business

Risks come in different forms. Below are the different types of business risks:

1. Strategic risk

Strategic risks can occur at any time. For example, a company manufacturing an anti-mosquito lotion may suddenly see a decline in its sales because people’s preferences have changed, and they now want a spray mosquito repellent rather than a lotion. To deal with such risks, companies need to implement a real-time feedback system to know what its customers want.

2. Compliance risk

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. Financial risk

Financial risk is about the financial health of the company. Can the company afford to offer installment payments to its customers? How many customers can it offer such an installment scheme? Can it handle business operations when two or three of these customers are not able to make their payments on time?

4. Operational risk

Operational risk occurs within the business’ system or processes. For example, one of its production machines may break down when the target output is still unmet. What will the company do if one of its machine operators has an accident during work hours?

Preparing a risk management plan

1. Identify risks

What are your risks and how likely are they to occur? Some will cause major disruption while others will be a minor irritation. You must make an educated assessment of both the likelihood and potential severity of each risk to prioritise your planning efforts.

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2. Minimize or eliminate risks

Once risks have been identified you need to either eliminate or minimise those risks. You should provide specific strategies for minimising risk for each of the six subgroups.

3. Identify who has to do what should a disaster occur

One of the simplest and most powerful tools for a speedy recovery from a disaster is a clear picture of, and clear directions about, who has to do what should your disaster plan have to be enacted.

4. Determine and plan your recovery contingencies

Recovery contingencies should be determined by the type, style and size of your business and by the extent of the damage.

5. Communicate the plan to all the people it refers to

This stage of planning is all about ensuring that all people within your business sphere (staff, suppliers, contractors, service providers) are made aware of the strategies you have put in place to either mitigate or recover from a disaster situation. Make decisions about whether the physical communication will be done by phone, email, text or other means. Once these decisions are made, procedural statements can be created and relevant people can be informed. The next part is to train staff and ensure everyone practices what has been done so if a disaster occurs the process can take over and guide the staff.

During day to day operations, any number of risks can pop up in a business so it is important to know how to identify any potential risks before they escalate. This will help you develop realistic and effective strategies for dealing with risks if they occur.

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6. Prepare a risk management plan

A risk management plan can help minimize the impact of cash flow issues, damage to the brand, and other risks. It will also help create a culture of sensible risk awareness and management in your business. Our Crisis planning for the business template below includes a risk management plan.

KEY TAKEAWAYS:

1.Maintain Good Management team.

2.Diversify the Existing Business to reduce the risk.

3.Organizations should identify which risks pose a threat to their current operations.

4.Broaden your vision and maintain stability while advancing forward.

5.Growth can add value to a company, but if it is not properly managed, it
can stress a businesss culture.

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Author: GANESH NAYAK

 Ganesh is an Entrepreneur and a Successful Stock Market investor. Ganesh help finance professionals and Fin-tech startups to build an audience and get more paying clients online. Ganesh is  available for Sales,Marketing,Finance , as well as private consultations.

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