Taking risks is common in any business, especially when your business is just a startup.
Not all risks can be eliminated, from financial to physical, but they can be minimized to a great extent with a good risk management plan. Yet multiple surveys, including one from North Carolina State University, have found that most organizations don’t have a comprehensive, enterprise-wide risk management plan in place.
When a risk becomes a problem, it’s usually not because of one misstep but a culmination of a series of mistakes that could have been avoided by sticking to the core tenets of the plan. Risk management isn’t about purchasing insurance, but there are many ways to develop an effective strategy for mitigating risk.
Understand potential risks.
Some risks are common, while others are specific to a particular business and can only be understood by the owner. If you don’t know the potential risks, you won’t be able to create a cost-effective plan for resolving them. That makes it a must to write and maintain a standard checklist of risks related to your organization.
Such a checklist should include risks to privacy and information, physical risks like injuries on the job, financial risks, environmental, and operational risks. It can be difficult to identify them all, but by asking yourself what you would do in certain circumstances, you can come up with a plan.
Think about things like what you would do if your company is facing a major scam, or if documents were destroyed in a fire. What happens if all your employees resign at the same time, your suppliers go out of business, or equipment is damaged and unusable? Each risk should be prioritized on the likelihood of it occurring so that you can address the highest risk issues first.
Now that you have a list of potential risks, it’s time to do some brainstorming. Hold a meeting with a trusted group of team members to pick their brains and get ideas from various perspectives as to how these issues might be resolved. As you do so, consider the various solutions, for example, some risks can be removed by eliminating the root cause, axing tasks associated with the risk altogether.
Of course, that’s not always feasible. For big risks, having an airtight plan of action that can be set in motion as soon as it occurs is the best way to go.
Another option is to transfer the burden of risk to a third party such as contractors through careful vendor credentialing and insurance documentation, which could save your business from worker’s compensation and/or general liability suits. Or you can take business owners insurance, as it includes property, business interruption, and liability insurance combined.
Consult with an outside expert.
Contacting one of the economic consulting firms in your area can be a great way to get advice from an outside expert when it comes to risk management. A consultant can help you mitigate the risk of discrimination complaints and therefore, potential costly litigation, for example.
Economists often work closely with risk-management experts to create systems and processes using risk management tools that can be monitored, assessed, and revised.
Regularly review your risk management plan.
Business environments aren’t static, they’re constantly changing, which means the likelihood and types of risks also change. Be sure to review your risk management plan on a regular basis to identify any new risks and/or loopholes.