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Why Regular Risk Assessments are Vital for Small Businesses

A major cause of the failure of small-to-medium-sized businesses’ (SME) is not managing their risks, research shows. The first step to boosting your approach is to assess risks regularly.

This article will step you through risk types, how to better identify, assess and reduce them overall. That means you’ll have increased protection against potential threats and be able to make better decisions. Aim to be proactive rather than reactive to risks.

Type of business risk

Here are the main categories of business risks:

  • Workplace hazards that injure people, damage property or the environment, including chemical spills and fires
  • Uncertainties, such as the impact of natural disasters, legal action or losing key customers or suppliers, which impact your cash flow
  • Financial, spanning your financial systems, transactions and your business structure
  • Business operations, which relate to employee theft or error or equipment failure, for example
  • Reputation, including from data breaches, product recall, negative coverage on mainstream/social media, unhappy stakeholders
  • Cyber security, which involves loss, leak or compromise of data
  • Opportunities – deciding between them, including technological investments.

Check out this website for a deeper dive into the paradoxes of both/and thinking.

Benefits of risk management

It’s worth being more systematic and strategic in risk management. Risk management is about the adequate allocation of business resources, and benefits to your business include being able to:

  • Save money
  • Reduce the risk of a workplace injury
  • Protect your business resources
  • Improve reputation
  • Generate more profit and sustainability in the medium-term
  • Fend off competitors.

Victorian research has delved into how small, and micro businesses survived the Australian bushfires and pandemic. It found those who embraced risk management, planned resilience and connectedness – having a collaborative social network – were most successful. Planned resilience is about protectively using your company’s existing planning and capabilities to prepare for potential risks and hazards. It relies on your business continuity plan. Western Australia’s Small Business Development Corporation offers a useful guide and template.

How to conduct a risk assessment

Think of a risk assessment as a strategy to manage the risks to your business:

  • Identify risks based on whether they’re internal or occur externally
  • Document these risks – define and rate their effects from mild to severe
  • Assess the risk and impact on your business in terms of financial, people, operations and strategic then manage the risk
  • Work out how to control, mitigate and, where possible, remove risks
  • Review risks regularly, adding new risks that have arisen since your last check.

Assessing risks should be on your mind most of the time, but look for specific triggers to refresh your management strategy. They could include a major change to how you do business, a new product line/service or deleting one or a suite of them, or a new competitor, for instance.

While your business might not be big enough to invest in certification through the International Standards Organisation, it may help to check out its overview of risk management. The ISO 31000 Risk Management standard encourages organisations to consider risks in their structure, processes, objectives, strategy and activities.

Reducing risk

A holistic and high-quality approach to risk management means committing to reducing your risks. The website encourages business owners to:

  • Link your company’s aims to your risk management plan
  • Detail your plan to your staff and build it into your induction training
  • Be explicit in supporting risk management
  • Establish and review (tweak if needed) the success metrics for your plan
  • Seek feedback from staff, customers, suppliers and stakeholders to help identify current and future risks
  • Keep updating your plan.

You’re on your way to a more holistic and regular approach to risk assessments. Be sure to factor in your insurance, which offers protection. We can guide you on best-risk management practice for your type of business.

Article supplied by OneAffiniti

Photo by Kings Access on Unsplash