Risk management has become a very key element in modern business management. This is understandable.
Obstacles and risks are part of a company’s growth, especially if you’re a small business owner. That’s why it’s important to understand them and know how you can mitigate such issues when they arise.
Your business’s ability to survive will also be determined by how quickly you can recognize and manage these risks — making it crucial to have a strategy (or two) in place to ensure proper handling of these business hazards.
In this article, we will discuss the common types of risks you may face when managing a small enterprise and four strategies that will help you address them. Each of these strategies offers different solutions to different problems; whether it’s ensuring your compliance with evolving rules and regulations or maintaining your brand’s reputation.
Common Risks for Businesses
Regardless of the company you have or the industry you are operating in, there are a few risks that you will likely encounter. These issues have the potential to hinder you from sticking to your business plan and achieving your goals.
The most common risks are:
- Compliance risk – endangers an organization’s operation, finances, or reputation due to violations of laws, regulations, codes of conduct, or organizational standards of practice.
- Strategic risk – internal and external events that prevent the company from realizing its plans and goals.
- Operational risk – results from inefficient management, policies, or internal systems that negatively impact business operations.
- Financial risk – a threat that can affect your cash flow, thwart you from fulfilling your financial obligations, or even cause your enterprise to lose money.
- Reputation risk – the possibility of damaging the company’s standing as it fails to meet the expectations it set, thereby impairing the public’s perception of the business.
Managing these risks means you must first identify them, then determine the likelihood of their occurrence. Doing so will help you know how you should mitigate those issues, as some risks may not be as damaging as others. Analyzing the potential threats will also assist you in determining the order of addressing each problem.
Now here’re four risk management strategies you can adopt to succeed in your small enterprise.
Risk Avoidance
While it’s impossible to avoid risks, companies can still do so by implementing various measures to prevent the problem from occurring. There are instances when you might have to compromise on resources or other strategies, and there are also times when you don’t have to do anything at all.
For instance, when you are considering an investment and find that this expenditure is too risky, you don’t push through with it at all. Risks like investments are the kind that can significantly impact your company, which is why it’s vital that you thoroughly analyze the benefits and hazards that come with them.
Also Read: Common Investment Risks You Should Know and Watch
Another example is enacting an efficient leave management protocol to prevent disruptions in your company operations. Doing so helps you properly handle employee leave requests and effectively disseminate work among your workers when one or two takes a day off, thereby establishing a seamless operation even with reduced manpower.
Remember that if your assessment shows that the negative result outweighs the positive, then it’s best to avoid the risk altogether.
Risk Reduction
Certain risks will still occur even with avoidance strategies in place. The next best thing you can do to mitigate the problem is to reduce the impact it can make on your operations. Risk reduction is among the most common methods in treating company issues and ensuring everything continues to run smoothly.
To give you an example, a business that involves manufacturing is highly susceptible to production errors (ie. producing the wrong dimensions, poor quality, etc). However, companies can reduce this risk by employing a quality assurance system to ensure that all outputs meet industry standards.
Risk Sharing
As the name suggests, strategy entails the company sharing the risks among different company departments (or even third-party entities) to mitigate the potential loss. Enterprises are likely to take this approach to prevent significant financial damage.
A common case for this is when companies purchase insurance, wherein the insurer will shoulder the risk and is also responsible for making amends in case of any deficit.
Risk sharing through contracts is also a frequent occurrence among businesses. For instance, your supplier would assume responsibilities and even penalties should there be any loss due to delayed or low-quality supplies from them.
Risk Acceptance
This strategy does nothing to prevent, mitigate, or worsen the impact of a risk. It may seem like a defeatist approach, but some losses are better taken since preventing them could cost the business more. This can also be the case if the reward poses a greater benefit in the long run and outweighs the current risk.
However, this approach should be taken with caution and you have a well-developed plan to mitigate the risk in case it poses a bigger threat in the future.
Conclusion
For small enterprises, it’s critical to invest and include a solid risk management strategy as part of their project plans. Identifying, analyzing, and properly managing risks can help your business overcome disruption, save valuable resources, and uphold your reputation. Following an effective strategy also ensures the growth and success of your business venture.
Sophia Young
Sophia Young recently quit a non-writing job to finally be able to tell stories and paint the world through her words. She loves talking about fashion and weddings and travel, but she can also easily kick ass with a thousand-word article about the latest marketing and business trends and finance-related topics and can probably even whip up a nice heart-warming article about family life. She can go from fashion guru to your friendly neighborhood cat lady with mean budgeting skills and home tips.
