There are risks in every line of business. It is up to a manager to identify what could go wrong, evaluate which risks should be dealt with and implement strategies to deal with those risks. Businesses that identify risks in advance will be better prepared and able to develop a more cost effective way to deal with them.
Risk management – the process of identifying and addressing the risks facing a company – should be a key part of any business. A manager must take time to methodically identify the risks surrounding their business activities, assess the likelihood of an event occurring, understand how to respond to these events, put systems in place to deal with the consequences and monitor the effectiveness of their risk management strategies.
Types of Risk
There are various types of risk a business can face. These include: financial – such as non-payment by a customer, operational – this could be the breakdown of a key equipment, strategic – this could be a competitor entering the market, or compliance – the introduction of new health and safety legislation. Other threats can come from environmental risks, political and economic instability, health and safety risks and employee risk management, such as maintaining sufficient staff numbers.
Risk evaluation allows a manager to determine the significance of risks and decide whether to accept a specific risk or take action to prevent or mimimize it. Rank all the risks once they have been identified by considering the consequence and probability of each risk. Remember that it is not identified by considering the consequence and probability of each risk. Remember that it is not always cost effective to take action to prevent or minimize certain risks. Risk evaluation may find that the cost of mitigating a potential risk is so high that doing nothing makes more business sense.
How to Deal With a Risk
When dealing with a risk, a manager can choose to accept it, eliminate it, reduce it or transfer it. It may be best to accept a risk if the cost of eliminating it is too high. Taking out insurance can allow a manager to transfer a risk. It may be possible to reduce a risk, for example by changing the way a product is produced, or eliminate it – this could be introducing new safety measures.
Next a manager has to devise business continuity plans to deal with the threats identified. These set out what should be done if a certain event happens. It is not possible to avoid all risk, but business continuity plans can minimize the disruption to a business.
A manager should not treat risk management as a one-off exercise, but instead should monitor and review their policy to ensure that risks have been correctly identified and assessed and appropriate controls put in place.