Risk management is an important topic for business owners and executives to understand. Running a company is challenging enough as you navigate the various logistics of building a team, developing a quality product, marketing that product, and selling it to generate revenue. This is an oversimplification of what it takes to run a business.
But those challenges do not occur in a vacuum. Every business faces certain risks that are often beyond their control. Natural disasters, cybersecurity risks, theft, lawsuits, employee conflict, unruly customers, fluctuating markets, and a hundred other circumstances can put the company’s bottom line at risk.
Every organization should have a risk management plan in place advises SGI Property Management in Mesa. Perhaps you are a growing small business that has not dedicated any time or effort to creating a risk management plan. Let’s break down some of the essentials of this business tool.
Table of Contents
Risk Identification
Not all businesses face the same threats, or at least not to the same degree. It is not enough to Google “business threats” and write down all the items from whatever lists your find. A far more effective plan involves spending time analyzing the company’s operations and determining what types of threats could arise that would threaten the bottom line.
For example, an e-commerce brand would find that cybersecurity and data protection measures are important business IT solutions to invest in so that their online customers are protected from data theft and Internet hackers. A brick-and-mortar store may not be facing that threat.
Risk Assessment
The risks that you have identified should be organized according to their severity. There are both negative and positive risks since not all unexpected circumstances will hurt the company. This stage is when you assess the various risks and determine how much of a threat they are to operations. Determine the level of impact that each identified risk may have on the organization and further organize these threats with an assessment chart.
One popular tool that businesses use for this analysis stage is a risk assessment matrix. You lay out the risks based on their likelihood of occurring and how severe the impact would be. This will help your team visualize what the greatest threats are versus circumstances that are still worth mitigating but may not be as damaging.
Mitigation Strategies
Now you get into the meat of your risk management plan. You have identified the risks, assessed their severity and likelihood of happening, and it is time to discuss how you will prevent, mitigate, and respond to those circumstances. A merchandising brand may decide to hire armed security for the property that deters would-be thieves or can help de-escalate physical altercations.
This stage should also determine who is responsible for implementing the mitigation solutions for each risk. This often will depend on what department is relevant to a particular risk. Come up with action plans and proactive solutions to either prevent or mitigate the damage that these threats can inflict on the company.
The Importance of Company-Wide Input
As you build this risk management plan, you must rely on the expertise of various department heads and employees. When you are in charge of a team, you are often thinking about the big picture. It is easy to identify big-picture threats to the company, but you may not be familiar with some of the day-to-day details where risks also exist.
When building the risk management plan, make sure that there is input from across the company and its various departments. Even if you only have five employees, make sure that they play a role in the development of the plan. Other team members may see things that you never encounter as the owner or executive, but they are just as much of a threat to the organization’s future.
Ongoing Analysis
The nature of risks to your brand is that they are ongoing. Just because you invest in better insurance in case of a fire in the building does not mean that a fire will not occur. Part of an effective risk management plan is that it can shift with time. The needs of the business may change as it grows, giving life to new threats that were not considered in the original plan. Ongoing analysis should be part of the strategy so that your team can adapt to new risks that may arise.
Is a Comprehensive Risk Management Plan Worth the Time and Effort?
Yes. Absolutely. A risk management plan is essential for any brand that is serious about its long-term prospects. You cannot control every circumstance that occurs outside and inside the business. That means there will always be threats that can damage the bottom line. Identifying risks, assessing their severity, assigning people to manage the mitigation solutions, and consistently evaluating potential threats are all necessary to give your brand a better chance of long-term success.
