The Ultimate Guide To Business Risk Management

Although many entrepreneurs are able to start and run a business for years without ever hitting even a minor hitch, there are many different risks which business owners need to be aware of, and protect themselves against. Some of these will totally destroy a business, whereas others will be fairly benign, but extremely expensive and time-consuming to repair. Despite the harsh reality of these risks, a little preparation can help massively to moderate the risk’s impact if and when it does hit. The following is a guide to identifying and guarding yourself against some of the biggest risks facing all businesses, regardless of their size or niche.

Physical Risks

The Ultimate Guide To Business Risk Management

Image: Flickr

I thought I’d start this off with the most basic kinds of risk; physical hazards that can threaten your business premises and the employees who work in it. You need to make sure you’re sticking to the recommended health and safety principles, and that your employees know what to do in the unlikely, but very serious event of a fire. Have regular drills, and clear best practice policies for minimising the risk of a fire, or disasters of a similar scale. It may be worth appointing a designated fire marshal, who will be responsible for making sure all the exits are unobstructed and that everyone in the office knows what they should be doing in the event of a fire. Aside from that, do everything you can to ensure you’re following the health and safety regulations specific to your niche. This will not only protect your employees, but will protect the business as a whole from any expensive legal action.

Human Risks

When you’re first starting a business, and trying to ensure its success, it can be pretty easy to get wrapped up in all the larger executive decisions, and forget about your workforce. However, if this goes on for too long, productivity and quality of output will begin to suffer, which will inevitably drag down your bottom line. Alcohol and illegal drug abuse can both be major risks in a company’s workforce, ones which you can’t afford to overlook. Make a point to get out of your office once in a while, and generally interact with the staff who make up the foundation of the company. If you find any hard evidence of alcoholism or a drug problem, talk to these employees and encourage them to seek help with the issue, or terminate their contract immediately if you deem it necessary. There are some insurance policies which will cover the cost of counselling, treatment and rehabilitation in these cases. The other big risks that can come from your workforce include embezzlement, fraud, theft, and other offences. Protecting yourself against these, and picking up on them when they occur, can be difficult, but certainly not impossible. Make sure you’re running precise and exacting accounting procedures every so often with the aim of uncovering any financial discrepancies. When hiring new employees, a thorough background check can open your eyes to any shady areas in an individual’s past, and allow you to decide whether or not you should hire someone. Finally, you need to think about sickness. This is inevitable, but will always be a drain on productivity when it comes up. To protect your business against this, try to find reserve workers you can lean on, and network with some reputable freelancers.

Technology Risks

The Ultimate Guide To Business Risk Management

Image: Flickr

There isn’t a single business that’s turning a profit today that doesn’t rely on some kind of technology. If you’re running a company without a website, it may as well not exist in the eyes of the majority of the public! You need to take stock of all the different technologies your business depends on to operate, and the various risks which have a chance of threatening them. One pretty universal technology risk is power outages. You can protect yourself against these by investing in back-up power supplies, for example through an apparatus of gas-driven power generators. If there’s any kind of software your business is dependent on, and it’s supplied by a company with uncertain prospects for the future, then you may want to insure yourself against the company going under, with something like a software escrow agreement. Perhaps the biggest technological threat that modern businesses need to take account of is cyber-attacks. Hacking and similar illegal activities are more widespread and sophisticated than ever these days, and if you’re not taking steps to protect yourself against them you’re more or less asking for trouble. Make sure you’re using strong passwords on all important accounts, and limiting access privileges to the people who really need them. You should also invest in some business-grade antivirus and malware services. Many people think that hackers save themselves for larger businesses, and that simply by being a small firm they’re more or less safe. In fact, smaller businesses are often at more of a risk, as hackers know that many of them have poor security measures. Prove these criminals wrong!

Prioritizing Risks

While all businesses are exposed at least somewhat to these types of risks, you can’t spend all your time and resources making them all an impossibility! Depending on the size, stability and niche of your business, there are going to be certain risks that should take priority over others. Take some time to go through the risks you’ve identified, and rank them in order of probability, ranging from it not being a case of “if”, but “when”, all the way down to risks that are near impossible. The best way to do this process accurately is drawing on some statistical analysis relating to your industry, and any other defining factors tied to your company. You should also take some time to make projections about the degree of financial damage you’d need to account for if one of these disasters did happen to occur. Combined, this kind of information will show you clearly which risks should be prioritised over others.

Risk Management

When managing business risks, insurance is a principle safeguard, and fortunately for you many different risks are insurable. For example, any business that has a physical business premises needs to be insured against fire, whether that premises is rented or owned. If you want to get this whole issue of risk management out of the way as quickly as possible, it’s important to avoid painting it all with a single brush, and paying for protection resources that aren’t really necessary. For example, if you’re running a service-based business, you’re not going to need product liability insurance and similar policies. Some risks should be high priority for pretty much every business. For example, you’re going to have at least some employees who are responsible for handling money, so fraud and embezzlement need to be considered. There are various specialized insurance companies out there who will underwrite a cash bond in order to provide coverage in the event of one of these crimes. Whatever it is you’re prioritizing at your business, never, ever assume the best-case scenario. Even if your workforce is made up of employees who have worked for you for years, and you’ve never had even the faintest suggestion of a problem, insuring your business against various kinds of employee error may be necessary. Insuring against an employee injury is pretty much a given, but you may need more or less of this depending on the nature of the work. For example, if you’re running a heavy manufacturing plant, you’ll need more extensive coverage for your employees than an insurance firm. If, when you come to actually trying to manage the risks that threaten your business, you find the whole thing overwhelming, it may be worth looking for a risk management consultant to help you out.

Prevention

The Ultimate Guide To Business Risk Management

Image: Flickr

The best kind of insurance in the world is vigilance and prevention. Now that you know the kind of risks your business is up against, it’s time to make some tweaks to company policy and culture, ensuring that everyone you employ is doing their utmost to prevent any kind of potential risk from turning into a reality. This can often be achieved through thorough employee training, extensive background checks, equipment maintenance, regular safety checks, and general maintenance of the office. It’s also a good idea to find a single, accountable staff member who’s proved themselves to be responsible and dependable, and giving them the managerial responsibility of handling risk management. If your business is large enough, you may even want to put them at the head of a whole risk management committee, and assign its members specific tasks, all with a duty to report directly to the manager. This will ensure you not only protect your business from the outset, but continue to in the future.

Wrapping Up…

While your average business is constantly facing all kinds of risks, and many of them can be highly destructive, there are various ways to prevent them, and give yourself a financial safety net if and when they do occur. The important thing is to take action soon!