Risk Management must be one of the most intimidating aspects to operating a business. What if you miss seeing one? What if you choose the wrong course of action? One false move can be hazardous to your company. It’s no wonder many people would rather ignore risk than face it.
There are two main types of risk: - External – not directly related to your business but can affect it. - Internal – has a direct effect on your business but it is under your control The good news is that not all risks are negative; if leveraged properly a risk can become a huge opportunity for you. While you don’t want to dwell on your problems, it is wise to face them. Here are a few of my key practices for managing risk.
Identify, Qualify, Quantify
Brainstorm to identify your risks. You can do this on your own but I suggest you call upon your team or an advisor to help you. A partner or group may see risks you haven’t noticed and can help you gain perspective.
During the qualification round you will separate the routine issues from real risks. Risks are issues that can impact your business as a whole. Routine issues usually effect a smaller piece of the operation. The qualification process ensures only valid business risks move into the mitigation process while other issues are managed accordingly.
For each risk identified, assign probability and impact values from high to medium or low. Try to assign a dollar value to each risk. The cost could include factors like the price of mitigating the risk or revenue lost if the risk becomes reality.
Once you’ve completed qualifying the risks you will want to rank them to be sure you’re addressing the most critical risks first.
Plan and Monitor
Basically, you want to find ways to reduce or eliminate each risk. You can do this by reducing the probability of a risk occuring, reducing the impact if it occurs, transferring the risk to someone else (e.g. purchase insurance), or you can accept it. Create your response plan and assign an owner for each risk. Find the person who will be the first to recognize if the risk event is triggered or the person who has the authority to respond quickly to the event.
Take time to assess the probability and impact for all identified risks regularly as some may increase or decrease in importance as time goes by. As new risks are identified, follow the steps above to bring them into the process.
In short, don’t hide from risks, face them and work with them. Preparing for a challenge is much easier than scrambling to resolve one you saw coming but chose to ignore. Responding confidently and methodically to risks and opportunities can define you, your team and your business as true leaders.
- Log in to post comments