Most managers are familiar with carrying out risk assessments from the perspective of health and safety for staff, customers and clients, but what about from the perspective of the business? Risk is inherent in doing business and the best way not to fail is never to take any risks. However, there are two kinds of risks, the kind you take consciously to move your company forward, and the kind that sneak up on you and pounce when you are not looking. The latter are the kind companies must actively manage to avoid being wiped out.
When it comes to managing risks, many companies prepare for natural disasters, fire, or maybe theft prevention, although many small ones do not even do that. But there are bigger risks companies of all sizes should manage. If you have a plan for what to do in case of physical emergency, you should also plan for:
Risk from competition
We have all heard stories of a company being taken down because they were not paying attention to competitors, or because they did not take competition seriously. An example would be Blockbuster Video who did not see Netflix as a serious competitor and were wiped out because of it. It is important to monitor:
- competitors bringing new products into the market,
- replacements to your offering,
- competition that is cheaper, better, etc.
Market risks
As we all know, nothing is “too big to fail” any more. Companies need to pay attention to market risks, remembering that their market could collapse, the demand could go down, or a new technology could completely change the playing field.
Talent risk
Far too few companies put enough emphasis on nurturing their talent pool. The failure to recruit and retain talented and skilled people is a huge risk, especially in fast-moving fields like IT, big data, research and development, etc.
IT risks
Technology risks fall into two categories. The first is the risk of not keeping up to date with new technologies and developments or reaching consumers where they want to be.
The second is in physical technology failure, such as website or server failure, major system failures, etc. Companies should have backup plans for every major technology system they operate.
Financial risks
What would happen if your biggest client disappeared tomorrow? The consistency of your cash flow dictates how nimble you should be with your outflow. The biggest risks here are not only around cash flow management, but also ensuring adequate funding and revenues, planning for profits, and so on.
Innovation risks
Many industries have found themselves floundering in the face of innovation. The music and entertainment industries are still trying to play catch-up with the digital revolution and when did you last hear of Kodak? The risk here is failure to innovate the product or service your business is offering.
Relationship risks
Partnerships are vital to good business strategy, but what happens when your main partnership goes sour? Do you have a backup plan? The risk here lies especially with key relationships with critical partners, suppliers, and distributors.
Reputation risk
In the Internet age, your reputation moves at the speed of Twitter, Facebook, and other social medias. It takes far less time to destroy a reputation than to build one. How will you manage the risk of losing your good reputation?
It is important for companies to actively monitor these risks, but more importantly, to take steps to manage them. For each risk you identify in your business, ask yourself:
- How likely is this to occur? You can rate each risk and assign priority to its management.
- How can I manage this risk? With insurance, company policy, or resources? What will you do if this thing happens?
- How can I prevent this risk? You might invest in employee training, background checks, safety checks, equipment maintenance, and maintenance of the physical premises, additional resources, new policies, or even new employee positions.Like making a will or taking out life insurance, taking a hard look at the risks in your business is rarely pleasant, but it is an important step in building a solid foundation for a business that’s not likely to be rocked by the waves of uncertainty.
