How To Identify And Manage Potential Business Risks?

Starting a new business can be a great experience for someone who wants to be their own boss. However, at the same time, they must note that running a company involves many risks, including technological risks, environmental risks, safety risks, risks associated with the downfall of the economy, etc. That is why as the owner, you must be aware of an effective risk management process. This blog throws light on various risks associated with the business world and how to manage them.

How Can You Identify Business Risks?

The standard Australian definition of risk says that it is the chance of something happening that may impact business objectives. 

Business risks include both external and internal risks, which can indirectly or directly affect the smooth running of the business. These risks can be uncertainty-based, hazard-based or related to opportunities. 

So, identifying business risks will be possible when you are fully aware of their types.

Different Types Of Risks

What type of risk will affect your business will completely depend on your business type and goals. So, for effective risk management, you must be prepared for potential external and internal scenarios that may directly affect your business.

Usually, there are two types of business risks - direct and indirect.

 

Direct risks

Under direct risks, the common categories include:

• Natural disasters, like storms, floods, bushfires, drought
• Legal issues, like disputes, insurance issues, non-compliance with industry regulations, contractual breaches
• Pandemic, like human influenza, COVID-19, bird flu, swine flu
• Global events, like political instability, pandemics, air traffic interruptions
• Technology, such as failures of communication networks and risks associated with outdated tools
• Environmental, such as pollution, climate change, chemical spills
• Changes in government policies and regulations, such as quarantine restrictions in pandemic times, water restrictions, tax
• Security, like fraud, theft, terrorism, loss of intellectual property, online security fraud
• Work health and safety, like dangerous incidents, injury or illness, equipment, accidents caused by materials, etc.
• Property and equipment, like robbery, vandalism, damage caused by natural disasters, burst water pipes
• Staff issues, like human error, conflict management, industrial relations issues, etc.
• Economic and financial, such as increased interest rates, customers not paying, cash flow shortages, rapid growth, etc.
• Market-related, like increased competition and changes in consumer preference
• Suppliers, including issues with the suppliers’ business or industry that results in interruptions to the product supply chain
• Utilities and services, including interruptions or failures to the delivery of your utility services like water, transport, power, and telecommunications

Indirect risks

Many business people sometimes make the big mistake of neglecting things that do not impact their business directly. This attitude eventually makes them unprepared to deal with any change in the business environment. For example, a natural disaster may not directly affect your business. Still, it may take a toll on the location of your company, daily purchase of the customers, and the supply chain. These three are key factors of a business, and a bad effect on their means your business will undoubtedly suffer in the following ways.

• Interruptions in the supply chain will result in a shortage of products or raw materials required to manufacture products.
• When your customers are badly affected, they may change their priorities, reducing the demand for your products. 
• On the other hand, your business’s utility services may be affected when the business location is affected. For instance, the loss of electricity cannot be an ideal situation.

How Can You Manage Risk In Your Business?

Business risk management is a process that combines business risk identification, assessing the risks, and building effective strategies according to the assessment. Whatever business you plan to start, you must have a well-structured risk management plan because it will help you understand possible business risks and find ways to reduce them.

How Should You Treat Your Business Risks?

Minimising business risks involves exploring different options to deal with risks that can severely affect your business. While some risks require immediate management, others can be treated later.

A detailed risk assessment will help you identify the risks that need immediate treatment. While developing a treatment strategy, the following factors should be considered.

• People responsible
• Risk reduction method
• Expenses involved
• Chance of success
• Benefits of reducing risks
• Checking if the treatment will be successful

You must mention how and why you have decided to manage your risks in your risk management plan. It is also essential to make regular reviews of the plan so that you can identify any new risks associated with business changes or technological improvements in treating risks.

 

Avoiding the risks

If possible, you may think of not proceeding with a business activity that may be risky. Or, you may consider another way to find the same results. That way may be changing the methodology, materials or equipment that does not involve any risk.

 

Reducing the risks

You may think of the following two processes to reduce potential business risks.

• Through top-quality control processes, auditing, staff training, compliance with standards, and regular maintenance, you may reduce the chances of the risk occurring.
• You can also think of reducing the impact of the risk through off-site data backup, emergency procedures, etc.

Transferring the risks

Transferring the responsibility for the risk to another entity can be another effective option. Through outsourcing, insurance, partnerships, or joint ventures, you can do it. It can also be done by:

• Providing training to staff so that several people have the knowledge to do a particular task, which can be effective when one of your essential staff members become unable to fulfil it
• Identifying alternative suppliers so that you do not go out of stock when your regular supplier fails to deliver the product
• Practising doing essential activities manually so that business operations do not stop in times of computer or another equipment failure

Where to find help?

If you are new to the business world, it will always be a good idea to take help from a business consultancy firm. When it comes to asset protection services or other business risk management services, Accounting Services Perth will be the best option to choose. Whenever you need help, call on their number or send an email.