Business Risk Management: Put a plan in place for your business

Risk is an inevitable part of business and can present itself in a number of different ways. Finding solutions to manage that risk when it occurs is part of an overall Risk Management Plan – a process that should be undertaken by every business. It could mean the difference between your business failing or thriving when unforeseen events occur.

Although most risks can’t be eliminated, by implementing a thorough and considered Risk Management Plan in advance you can reduce the effect these events may have on your business. After all, unmanaged risks can have disastrous consequences for your business.

The importance of managing risk

One of the key reasons for managing risk is knowing that your business can continue to operate when risk events occur. This means still being able to meet the needs of your clients, and most importantly, continue generating revenue. (Your fixed expenses won’t go away during this time)! Many businesses have failed when unforeseen events have wreaked havoc on processes that weren’t risk assessed or tested.

Risk can create uncertainty. By identifying business risks and implementing processes to manage them, it gives your business that certainty back. And the knowledge that you are fully prepared for these risks gives your business a strength it didn’t have before.

What is a Risk Management Plan?

A Risk Management Plan is like an insurance policy for the intangible assets in your business. It’s a process of identifying and assessing risks and developing strategies to manage those risks.

The risk management process is a number of structured steps that will come together to form your plan. You can find plenty of versions of these around, but here’s a general overview of the most important steps:

• Identify risks – Anticipate problems before they occur. Consider risks within your business as well as any external risks.
• Analyse the risk – What’s the probability of the risk occurring and what are the consequences that may happen? How will the risk affect your business?
• Evaluate the risk – Ascertain the likelihood or seriousness of the risk (low, moderate, high, extreme) and determine a risk profile using a risk matrix.
• Treat the risk – Eliminate, mitigate or minimise the risk. Use the risk profile to determine appropriate action. Develop strategies, processes and procedures that allow you to carry on ‘business as usual’ in the face of risk events. Don’t forget to test the new procedures.
• Monitor and review – You should review your plan at regular intervals or if something changes in your business.

Identifying business risks

Identifying business risks can be a challenging step of the risk management process. And it’s important to look beyond the basics – delve further than the risks that affect every business and find the ones that may affect yours. (You still need to include the basic risks on your plan though).

It can be helpful to look at categories of business risks to assist with the process of identifying ones that may have a detrimental effect on your business if they occur.

Categories of business risk

Overarching categories and sub-categories of risk can include:

• Strategic
• Compliance
  • Regulatory or Legislative changes
• Financial
  • Customers (do 1 or 2 of your clients provide the majority of your revenue?)
  • Liquidity and gearing
  • Foreign exchange risk
• Operational – This includes all operational processes within your business.
  • Technology (failure, security)
  • Supplier (dependence on a small number)
• Environmental – External to the business. Little to no control over conditions.
  • Natural disasters
• Reputational

Some risks are easily controlled and you can manage the likelihood of them occurring. For the risks you have no control over – you will need to ensure the processes to counteract the risk if it occurs are well-planned and tested.

Some risks may be dependent on your industry, or even on your geographic location so it’s important to think outside the box to identify all the risks that may be present.

How to manage internal risk events

Internal risks are brought about during the general operations of your business. You have a greater level of control over these risks, and once you have identified them you can take steps to mitigate, reduce, or eliminate them.

Examples of internal risks include;

• Human Factor
• Technological
• Physical

How to manage external risk events

External risks arise from events occurring outside of your business and are often difficult to predict and quantify. This can often be a stumbling block for business owners when considering a strategy or procedure to manage these risks if they occur. They can’t be reduced or eliminated like internal risks, so it makes the mitigation strategy all the more important.

Examples of external risks include;

• Economic
• Natural
• Political

Don’t forget to review your plan at regular intervals

Your Risk Management Plan should be a living document which gives you the framework to assess and manage risks as they become apparent in your business. Any changes within your business also present an opportunity to review and update your plan.

We know developing a Risk Management Plan can seem overwhelming, especially if it isn’t something you’ve considered for your business before. Getting professional assistance can give you clarity and insight and set you up with a relevant and workable plan with robust processes that will enable your business to thrive through unexpected risk events.

We recently wrote about insurances and business continuity plans which should also form part of your risk management processes. You can read it here.

Modoras can work with you to develop a plan that manages the risks your business may face and puts you in a position of strength to tackle any events as they occur. Book an appointment with our Business Advisors today.

IMPORTANT INFORMATION: This blog has been prepared by Modoras Accounting (QLD) Pty. Ltd. ABN 81 601 145 215. The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals’ personal circumstances have been taken into consideration for the preparation of this material. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Accounting (QLD) Pty. Ltd. recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Accounting (QLD) Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Accounting (QLD) Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Accounting (QLD) Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication. Liability limited by a scheme approved under Professional Standards Legislation.