Every type of business encounters some level of financial, legal or operational risk. The frequency and severity of these risks depend on the type of services or goods provided by the company, external factors including geography and the overall economy and the business’s use of risk management strategies.
Businesses that adopt a risk-based approach to strategic planning are more likely to thrive. The ability to effectively mitigate, avoid, transfer, and accept risks can minimise the impact of an unforeseen circumstance and accelerate a company’s ability to recover.
In order to create an effective risk management strategy, you must first understand the concept of risk.
Business Risk is the possibility of your business, or business division encountering an unintended negative circumstance.
Knowing what risks to take and which to avoid is key. That’s where risk management comes in.
What is Risk Management?
Risk management is the process of identifying and minimising the risks that your company is exposed to.
Once you have identified the risks specific to your business, there are several strategies you can put in place to effectively manage them.
1. Observe Safety Procedures
Following the Occupational Health & Safety regulations of your industry is essential and adhering to these rules is the first step to reducing your business risk. For example, if you work in construction, ensuring everyone that is on-site wears a hard hat is not optional, it’s imperative.
2. Take Preventative Measures
Risks specific to your business are not always covered in OH&S guidelines. Management must consider what these are and put preventative measures in place to reduce the business’ exposure to them. For example, insisting that company passwords are not shared out-with the business can prevent a possible data breach.
3. Monitor Risks
Identifying your risks and risk reduction strategies is the first step to effectively managing your risk, however risk management doesn’t stop there. Your business risks should be constantly refined and updated as the business evolves. Changes within your industry, regulatory structure, supplier circumstances, customer behavior or economic environment can all affect your risk portfolio, positively or negatively.
4. Get Insured
Risks that cannot be easily managed or mitigated can be covered by business insurance. For example, theft, damage by severe weather conditions and risk of facing an employee lawsuit, are almost impossible to predict. As a business owner, you can access a wide variety of insurance polices to find the most appropriate cover for your business or assets.
5. Create a Risk Response Plan
Mitigating and avoiding risks are an important part of risk management, but they can’t stop every risk. Having an effective risk response plan in place will help your organization recover in the event that a risk does occur. Contingency and backup plans can help ensure your operations and systems are as resilient as they can be.
It takes effort and expertise to effectively manage your business’ risk, but it’s an important part of your strategic operations. Knowing when it is and isn’t appropriate to take risks, and which risks are worth taking makes a huge difference to your business’s success.
Speak to your PSC Connect Authorised Representative for advice on managing business risk.
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