Business Risk Assessment: Management Strategies

Is your company equipped to handle a natural disaster? How about a new competitor offering similar services below cost? These are some of the questions every business owner needs to ask themselves to ensure the solvency of their company. One way, and a crucial one at that, is to implement risk management strategies. By creating several strategies to deal with the unexpected, you can position yourself to tackle even the most egregious circumstances. However, to know what you need to plan for, you first need to perform a business risk assessment.

What is a Business Risk Assessment?

Potential risks and their effects are identified through a business risk assessment. They're used by businesses of all kinds to decrease business risk, establish disaster recovery plans, and buy insurance for events they can't entirely control. These evaluations are especially important for small enterprises. According to the Federal Emergency Management Agency (FEMA), approximately 40% of small firms never recover from disasters. Vulnerable businesses must recognize possible threats in order to devise strategies to mitigate them.

What is the Purpose of a Business Risk Assessment?

A business risk assessment is designed to examine potential hazards and identify their inherent risk. The evaluation should identify possible threats and their consequences. The business risk assessment should also outline viable control methods to mitigate any unfavorable impact on the organization's business operations or assets. A well-prepared firm can significantly reduce any negative impact on earnings, productivity, and customers with key risk management strategies in place. The capacity to recognize potential risks is an essential element of strategic business planning for both startups and existing firms. Risks can be discovered in a variety of ways. Identifying these risks requires a thorough examination of a company's unique business operations. Most businesses confront preventable strategic and external challenges that may be dealt with by accepting, transferring, reducing, or eliminating them.

Types of Business Risks

Risk management for small businesses comes in a variety of shapes and sizes. The following is a list of business risks to be aware of:

Strategic risk - When a company plan fails to provide the desired results, it poses a strategic risk to its development and progress. Such risks might arise due to technological advancements, shifting competitive landscapes, or shifting client needs.‍
Compliance risk - Companies may face compliance risks if they must follow new regulations established by the government or a regulatory agency. For example, a new minimum wage may need to be implemented immediately, and failure to do so could lead to serious consequences.‍
Financial risk - The capacity of your company to manage debt and meet financial obligations is referred to as financial risk. Instability, losses in the financial market, or fluctuations in stock prices, currencies, and interest rates are all examples of this sort of risk.‍
Operational risk - Operational risk is a type of risk that happens within a company's system or operations. One of its production machines, for example, might break down while the goal output is still unfulfilled.

Business Risk Causes

There are three primary sources of risk management factors to consider are:

Natural disasters - Flooding, earthquakes, cyclones, and other natural catastrophes are examples of natural hazards that can result in the loss of life and property. For example, a delivery vehicle is on its way to deliver a customer's order when an earthquake hits, resulting in an accident. Businesses must take out extensive insurance coverage to protect themselves from such risks.‍
Human factor - Worker negligence, union strikes, and mismanagement are examples of human factors creating risks within an organization.‍
Economic fluctuations - Economic factors include growing raw material and labor costs, rising borrowing interest rates, and increased competition.

Find Peace of Mind with a Porte Brown Business Risk Assessment

Porte Brown isn't your run-of-the-mill Chicago accounting and advisory firm. We are a client-focused, results-driven business that provides customized service to all of our clients. In addition to the traditional accounting services, Porte Brown also provides strategic consulting and leading-edge technology implementation for clients in cloud and non-cloud environments. Contact us today to learn about how our comprehensive solutions can help you secure your business.

Top Risk Management Strategies

The method used to conduct a business risk analysis varies considerably based on the risks specific to the type of company, the sector the firm operates within, and the compliance regulations that apply to that particular business or industry. Regardless of the sort of business or sector, there are five fundamental types of risk management steps that firms may take.

Step 1: Determine the dangers.

The first stage in a business risk assessment is to identify any possible threats that would harm the organization's capacity to do business if they occurred. Natural catastrophes, utility outages, cyberattacks, and power outages are all potential risks that might be evaluated or detected during a risk assessment.

Step 2: Figure out what or who could be damaged.

Critical infrastructure, IT systems, business operations, company reputation, and employee safety are all considered in danger from these threats. After the risks have been determined, the following stage establishes which business assets would be harmed if the risk materialized.

Step 3: Assess the threats and devise countermeasures.

Risk analysis may assist in determining how threats will affect company assets and work toward determining actions that a business can implement to reduce the effects of these hazards. Property damage, company interruption, financial loss, and legal fines are all possible risks.

Step 4: Keep a record of your results.

The company's risk assessment results should be documented and filed as formal papers and should be easily accessible. Companies should include details on possible dangers, related risks, and measures to avoid the hazards found during the assessment.

Step 5: Regularly review and update the risk assessment.

In today's corporate world, potential dangers, risks, and the controls that go along with them can alter quickly. That’s why it’s critical for businesses to update their risk assessments frequently to keep up with these developments and stay ahead of any new threats that may arise.