Business owners are faced with constant challenges and tough decisions to make on a day-to-day basis. Risk-taking is often necessary to achieve more in the business, but owners need to make informed choices to avoid potential damages. To manage risk effectively, a proactive stance needs to be taken in identifying and responding to risks before a crisis strikes.
The Australian standard defines risk as ‘the chance of something happening that will have an impact on objectives’. Risks can be hazard-based, uncertainty-based or opportunity-based, with both tangible and intangible items posing risks for your business. Owners may find it easy to list the physical items at risk such as assets and infrastructure, yet neglect intangibles such as injury to staff, loss of important business information, fraud, product recalls, supply chain disruptions and more. It is important for business owners to be aware of the risks they could face in their business.
Calculate your risks:
Making an educated assessment of both the likelihood and potential severity of risks can help prioritise your responses. Once the risks have been identified they should be ranked on the likelihood of occurrence and the severity of consequence it might impose on the business. This risk criteria helps to form a risk rating which can be ranked from low to extreme. The risk rating helps you to determine what situations need more time, attention and resources.
Manage your risks:
Finally, the risks need to be managed effectively. There are four ways of managing risk including avoiding the risk, transferring the risk, reducing the risk and accepting the risk. Avoidance is not always the best or viable solution as there is no way to ever be completely risk free. Transferring is a common way of avoiding damage as the risk is no longer your problem, for example, insurance and product warranties. Reduction of risk comes from a sound knowledge of your business and little things you can do that make a difference. Acceptance is for those owners with experience and a clear mind. Nothing in life is without risk, the business owners who accept this and learn from challenges are the ones who find success.