Now is the best time to start and run a business. It is pretty easy to access funding, assessing the market is straightforward, and you can always rely on the internet for marketing and building a brand reputation. However, it is sad to learn that 90% of new businesses fail.
While the reasons behind their failure are many, they can be summarized by one big mistake- poor risk assessment. If the leaders of such businesses had assessed their risk landscape early enough, they would have easily identified most of the risks they faced and found ways to circumvent them. This doesn’t have to be your business as long as you can integrate risk assessment into your decision-making process.
Here is how to use risk assessment to prop your business up or succeed:
What Is Risk Assessment?
A risk can be an opportunity or a threat to the existence of your business. Wherever a risk lies on this spectrum, your business can never understand how to react to it without taking the time to understand it. Risk assessment is simply a process used to gauge the risks that a business faces. It also helps align the different risk actors to your resources to help you understand how your business can react.
Internal Vs. External Risks
Internal risks are risks that occur within your organization’s boundaries and are almost always within your control. These include security, financial, political, and cultural risks. You can easily tweak the different aspects of the risks to ensure a great environment for the business to flourish.
On the other hand, external links exist outside your organization and are often outside your scope of control. If they were to happen, your business should choose the right way to react to them to maintain its formidable status in the market. They include economic changes, the rise of new competitors, market changes, and the change in government regulations, to name a few examples. While the treatment for both risks might be different in terms of the level of control you have, the risk assessment process is typically the same for them.
Start With Risk Identification
Ideally, you need to start a risk assessment by outlining the different risks that your business faces. With a well-outlined list of risks, it can be easy to predict what risks your business will manage to handle and which ones will be too monumental. For the obvious ones, simple brainstorming sessions might be enough to identify risks.
However, you should never ignore the less-than-obvious risks. While a risk might seem trivial at first, it can easily snowball into a huge threat to your business. For such risks, you can commit to market research, speak with industrial experts, assess your business reports, attend industry forums, and even do historical research on how other businesses handled them.
Assess And Rank The Risks
Once you record risks in your risk register, find ways to quantify the impact they can have on your business and the likelihood of them happening. Assessing the risks offers you insights into how your current resources compare to the threats and opportunities that your business faces. It might also pay to rank the risks.
Not only can this help you prioritize them, but it can also lead to the effective usage of your resources. Ideally, a risk matrix can be enough for ranking these risks, offering you a visual representation of your entire risk landscape.
Choose Worthy Treatment Methods
When resources are limited, you don’t have the luxury of throwing resources at any risk. You need to understand what risk needs a priority and determine how to control the risk. For any risk that your business can mitigate, chose tools and strategies to help you do so. If a risk can be handled better by another individual or entity, transfer it to them. This includes risks that can be insured or mitigated by outsourcing the underlying tasks.
For those risks whose impact can be too big for you to handle, feel free to avoid them. For instance, the risk that you will be non-compliant with the GDPR by opening a business branch in Europe should be avoided- you can revisit this venture once your business has the capacity to handle it. Lastly, any risk whose impact is too trivial to change your business should be accepted and ignored. The cost of mitigating risks should never be more than the financial impact it can have on your business.
Monitor And Update Risk Treatment Methods
Your risk landscape is bound to change from time to time, with new threat actors getting involved. In some instances, the risk treatment methods that you used might stop being effective in mitigating the risk. You might also change your inclination towards certain business risks. All these paths call for a review of your chosen risk treatment strategies.
Ideally, you need to conduct constant risk monitoring and update risk treatment methods when the need arises. It might pay to appoint someone to monitor the risk to improve accountability. As long as your business is on its toes monitoring these risks, their possible impact can be lowered.
It can be demoralizing to watch a business you have been building for a long time crumble due to a risk you could have eliminated. The power to stop this is in your hands. Focus on risk identification and assessment to prop your business up for exponential growth.