Hey! It’s a great pleasure connecting once again through this blog platform.
In my most recent blog I talked about tips to make startups successful. Today I’m taking a totally different direction altogether. I would like to write something about business risks. We can look at business risks very broadly, but I will try and remain within certain limits. By risks I mean anything or situation that threatens your business and could result into business failure, loss of resources, assets, profits etc. I mean exposures to dangers that could act adversely against your business, or threaten the health, well being and survival of the enterprise. Now, the list could be endless but I guess you can easily identify the main or critical ones without losing your head. Ok?
Some people have come up with broad classifications of business risks such as strategic, financial, operational, reputational, compliance and others. These risks affect almost all types of businesses whether small or large. It is therefore advisable to have a good look at the full scope of risks that your enterprise could face. Don’t you think so? It’s better to be fully aware and covered than have regrets when you are hit by a risk you had brushed aside as relevant to only the big players or a particular industry. Isn’t it? Again, the risks could be preventable or not, internal and external, related to revenues, expenditures, quality, staffs etc. I think you are now beginning to see that this is indeed a very broad topic!
My duty now is not to write an extremely long article or a book on business risks. I will try to KISS (Keep It Short and Sweet) the subject. I will focus on the basic principles that you can use for managing any kind of business risk that you can imagine or that comes across. These are very solid principles and you can challenge me if you like. So, what are some of the best approaches or best practices in managing business risks? What are the top tips in managing business risks? What are the golden rules in enterprise risk management? How do you effectively control and manage risk in an enterprise? How do you eliminate and minimize risk in your enterprise? Let’s take a look.
- Identity reasonably all your business risks. My first tip for managing business risk is an extremely easy one. It’s in fact embarrassingly easy and yet if you asked a random sample of entrepreneurs today to enumerate their key business risks, you’d probably just get some unclear or very vague idea of what they think are key ones. I’m not lying by the way! Honestly, just try finding out and you will believe what I’m saying. So, the very first thing is to identify and write down all your business risks. I mean major or significant ones, and covering all areas of your enterprise. Look at your strategy and tactics, operations, marketing, finance, human capital, the law, the environment, internal and external factors etc. Asking questions such as why, where, what, how, when etc. could give you some leads. Ever heard about the term ‘risk profiling’? Probably I will go into the details of risk profiling another day. Just for clarification here, I used the phrase major or significant with the purpose of avoiding any lazy and unserious approach to identifying business risks. If you decide to imagine that the world will end tomorrow and you will not have a single customer, that’s up to you. It could be somehow way behind the radar, but only you could determine that. Again, if you think that the unavailability of break time snacks for your staffs is a very big risk I leave that to you. Ok? It’s really up to you what you do about defining your key risks.
- Create risk awareness and culture in your enterprise. My second tip in managing business risk is that you should create awareness within the enterprise, of these risks and how they should be managed. You have to develop a risk culture across the enterprise. Please, don’t make the mistake of having some very powerful risk profiling and risk strategy document in your drawer while the rest of your staffs have no clue of the whole thing. The point is this – there are literally hundreds of activities carried out by your staffs on behalf of your company that have elements of serious risks embedded in them. Don’t you agree with me Mr. Entrepreneur? So, train and involve your employees on risk management. Share relevant policies and procedures with them. Let them know the exposures involved and how these can be eliminated or minimized in the interest of the enterprise and their own interests. Ok? You can never succeed in properly managing risk in your business if you are a loner. An enterprise-wide awareness is a good point after identifying all the major risks your business faces.
- Prioritize the risks in terms of likelihood or possibility and impact or consequence. Now, my third tip or golden rule in risk management rotates around the powerful words likelihood/possibility/probability and impact/consequence. What am I saying here? You need to try and narrow down your risks in terms of likelihood or possibility of their occurrence, and additionally on the potential impact or consequence on your business. Don’t you think this is a smart move that can help you focus your risk management? Can this approach not help you save some time and resources while you manage your enterprise risks? I’m just giving you some top clues and best practices in managing risks. If you would like to throw your entire weight, time and other resources in managing every risk (major and minor, even with very remote possibility), that’s up to you. You can’t blame me. Can you? Prioritization enables you to only place emphasis on the majors and not the minors. Do you remember the Pareto Principle I wrote about some time back? By this principle, about 20% of your activities give you 80% of your major business risks. Focusing 80% of your time and resources (for risk management) on this 20% gives you 80% advantage in managing risk in your enterprise, and will help you avoid 80% of business problems arising from risks. I think you can agree with me that this Pareto of a guy was very smart. No wonder many enterprises and organizations globally today use his principles across their operations. Don’t waste your precious time and resources chasing every fly of a risk. Ok? Follow the elephants! Period.
- Identify, analyze and choose the best or most optimal options to manage risk. Here comes the key aspect of choice my dear entrepreneur. There are always options and choices to make. Moreover, in the diverse business world today all sorts of people and enterprises will pass by selling all kinds of products and services to address your risks. If you are not careful someone could sell to you even an absolutely useless product or service in the name of risk management. Be smart! You need to make a sober decision, if you really desire to eliminate and minimize your risks and their impacts on your business. Identify your options for addressing the key risks you narrowed down to, in terms of prioritization above. Analyze the options in terms of ease of implementation, costs, relevance, effectiveness and efficiency etc. Weigh all relevant factors and then proceed and chose the best options so that you can implement them, to best manage your business risks.
- Implement actions to eliminate or minimize/mitigate risks. You are now at the implementation stage after you have made your choices on the best approaches as detailed above. Whether this will involve taking an insurance policy, placing more guards on your business premises, negotiating some terms and redrafting agreements with the government or third parties, planting tracking devices on your transport fleet, carrying out routine business intelligence on your key competitors and their activities, buying new machinery, rescheduling your loan repayments etc. this is the D-day for action. You can no longer dilly-dally here because you have consciously arrived at the choices which you are now implementing. This is why it’s good to focus on the key risks in light of the likelihood and impact. You can’t lose sleep over everything. Can you? If you choose to be nervous 24/7 over some risk that is up to you, but you need to remember that other things in life are far more precious than that business or risk. Ok? It depends on your outlook anyway.
- Monitor and review your risks. This is my second last tip for effectively managing business or enterprise risks. I said these are fundamental principles and indeed they are. They apply to managing risks of diverse nature in enterprises small and big. These are things an entrepreneur must know about risk management. After your implementation of the choices above to mitigate risks in your enterprise, you need to monitor and review the impact. You could have made a silly choice and decision somewhere along the line, and if you discover this, you need to be honest with yourself, your team and your enterprise, and take corrective measures in a timely manner. The issue is that if you don’t, you will be found naked one day as far as risk is concerned. You could pay a high price, and when it comes to losing money, I mean real money, no one wants it. This is the time to reflect on your implemented options and assess their effectiveness and efficiency. If you realize for example that you are spending a fortune covering a risk with very remote likelihood of occurrence, you could consider other cost-effective options. Do you understand me? Don’t live in the past yet bragging around that you have the best risk management approaches in use in your enterprise. You could be sleeping as far as changes in risk management are concerned.
- Manage risks in a dynamic approach. Again, the modern business world is getting more complex and dynamic. My friend, you should know that your risk profile of two years ago might not be relevant today, simple because the world is rapidly changing. A good example is technology and more so information and communication technology. Your data protection profile of today might need a massive overhaul in the next one and a half-year because of emerging developments in software. You strategic risk relating to the machinery you are using today may change drastically due to new developments in that industry. New technology might help you largely eliminate the risks regarding quality, or staff activities. There is always something new coming up, and you don’t need to be left in the fossils as far as risk management is concerned. Ok? Manage your risks in a forward and dynamic way. The only permanent thing is change, so this means that you have to change with change. Keep on redrafting your risk profiles and scenario planning, so that you stay on top of your business risks. This is not to say that your enterprise can never get some exposure to risks. It can, but the impact will be very minimal, and you won’t go crying around and telling everyone even those who are not interested in hearing about your woes. By the way, risk management also involves managing the insurers and insurance contracts. Do you get me? I know many of you entrepreneurs contract policies to cover your risks, but you pretty much don’t care whether you do this with good and reputable insurers or not, and whether the policies are properly worded or not. Now, there are some insurers who will try to avoid paying you, as much as they can. They become risks in themselves. I won’t take another jibe at my insurance friends, but I think we all get the idea here.
In conclusion, the above are the top tips for managing business risks I thought I should share with you today. These are golden rules to effectively manage enterprise risk, and you do well to adopt them if you are not already using them. If you are already on top of all these, you could share these risk management principles with someone you know needs them. So, take care!
The Wise Entrepreneur