The business world is full of challenges. Some challenges are easy and welcome. Others are uncomfortable, painful, and disastrous. As a business owner or manager, it’s your responsibility to understand and address risk so that your business can enjoy sustained success.
5 Tips for Dealing With Risk
“It’s tempting sometimes to wish that everything in business would go well without ever having to take a chance or a calculated risk. Unfortunately, we live in the real world and it just doesn’t work that way,” entrepreneur Elizabeth Harrin notes. “However, if we didn’t take risks, we’d never move into new sectors, take on new clients or take chances on new suppliers. Business without risk would be incredibly boring.”
In order to embrace risk in a smart manner that gives your business the best chance of being successful, you’ll need a risk management plan. Here are some tips to get you thinking in the right context:
- Identify and Prioritize Risks
You can’t create a risk management plan without first identifying which risks your company faces. Aside from the obvious things like competition or theft, you need to think about the less apparent issues like natural disasters, sickness or injury, employee turnover, and late-paying clients.
Once you have an idea of the different risks your business faces, you should take the time to evaluate their impact so that you can give priority to the ones that matter most. The best way to do this is by asking “what if?” questions. For example, ask yourself:
- What would happen if our biggest client suddenly left for a competitor?
- What would we do if a natural disaster wiped out power for a week?
- What would we do if an employee filed a costly lawsuit against us?
These aren’t questions you would normally want to think about, but they help you think about risk in real-world context.
For businesses that face dozens or hundreds of different risks with various outcomes, it’s helpful to establish a risk matrix. This enhances communication, improves awareness, and (ideally) leads to better business performance.
- Insulate With Insurance
Insurance exists for the purpose of insulating your business from situations that could lead to financial destruction. Making room in your budget for the right types of insurance will help you transfer risk to an entity outside of your organization.
Depending on the niche you’re in, you may need industry-specific insurance policies., Examples of general insurance include professional liability insurance, property insurance, workers’ compensation insurance, product liability insurance, and business interruption insurance.
- Establish Controls, Checks, and Balances
For every risk your business faces, there needs to be a handful of controls, checks, and balances in place to ensure no single issue sets you back more than it should. Developing these ahead of time – rather than in the line of fire – will prove helpful.
- Have a Response Plan in Place
When risks are realized, you have to mitigate the impact the outcomes have on your business. A well-developed response plan will serve you well for the future.
As you develop response plans for your biggest risk factors, be sure to involve as many people as possible. The more you give people responsibility, the less dependent the response is on any one person. This gives your business a greater chance of moving on without a hiccup.
- Stay Alert
Businesses tend to get caught in tight spots when they feel like everything is going well. It’s during these moments of bliss that it’s easy to turn a blind eye to certain risks and succumb to costly mistakes. In light of this, be sure you’re on a high alert at all times. In both smooth seas and choppy waters, risk should be dealt with proactively.
Don’t Let Risk Get You Down
At the end of the day, there are four basic ways you can manage business risk. You can mitigate the risk, avoid the risk, transfer the risk, or accept the risk. Knowing the situation will allow you to approach each potential risk with a strategy that aligns with one of these four categories.
Always remember that risk is a normal part of business. While you can prevent and avoid certain situations, others must be embraced. In this regard, a proactive approach will serve you well.