An internet search on Risk Management Techniques yields lots of results on subjects like insurance, OSHA standards, financial safeguards, issues related to environment protection and sustenance, government legalities, and computer backup systems. While all these are elements of risk control, they do not in themselves help your business to identify the risks it faces.
The Five Point Risk Management System
The success of a Risk Management System requires a business owner to comprehensively follow the steps laid out in the system and practice strict adherence to the rules. A good Risk Management System should include the five steps below:
- Identifying Risks: These risks could be due to fire or forces of nature, risk of obsolescence, competitive products or theft (of tangible as well as intangible material)
- Quantifying Risks: Identified risks need to be quantified in terms of potential loss of income and reputation caused by the actual loss, as well as further loss of income until the risk is tackled and eliminated
- Formulating Strategies to Contain the Identified Risks: As has been said earlier, you cannot run a business without running a risk or taking a chance. What you can do, however, is to contain the risk so as to limit potential losses
- Implementing Strategies: Strategies, no matter how good they are, are useless unless they are put into practice. Putting strategies into practice also helps to evaluate their utility and identify company shortcomings.
- Continuous Monitoring of Risk Containment Tasks: Risk containment tasks have to be constantly monitored to ensure that the risk that they present is tackled promptly and thereby minimized. Continuous monitoring ensures that the changing needs of the business are met.
Sources of Risk Management Expertise
- Consultancy Firms: There are many consultancy firms that can help you set up your system. Choose a firm that specializes in Risk Management Systems for your industry and size of operation. While this is a comparatively expensive option, you will be sure of a tailor-made solution that will meet your precise requirements.
- Computer Software: There are many off-the shelf risk management software packages available. You should choose one that suits the needs of your business. You could either use this package as it is or use it as a starting point for designing a system for your specific business. This option is most suited to small businesses. It is cheaper and requires you to have some knowledge of business risk mitigation and management – and unless you are sure of what you are doing, it could get you into trouble.
A good time to set up a Risk Management System is at the time when you are formulating your business plan. At this stage, when all aspects of the business are being examined and discussed, risks also get discussed and examined. Setting up a Risk Management System at this stage will help you to go over your risks from the very beginning. Engaging a Risk Management Specialist at this stage and taking them through your Business Plan is invaluable. A robust Risk Management Process could also help you get better financing, as it will definitely help convince the lending source that lending money to your is a safe bet.
As unnecessary as a Risk Management System may seem when running a business, especially a small business where any perceived losses are small, a good Risk Management plan helps to ensure the continuity of your business. While it is unrealistic to expect that drawing up a Risk Management System will shield you from all risks, it is comforting to know that it will at least protect you against most risks. It is also important to remember that every Risk Management System has to be periodically reviewed and updated to cater to growing and changing business needs.
A good Risk Management System will help you reap the rewards of your efforts to set up and run your business.