Risk Management is a term usually associated with project management to identify the possibility of loss. A study of the risk in starting a new venture is done to prevent failure and the waste of time and money. However, taking the time to identify and manage risk in an existing business is good practice. In this ever-changing world leaders need to be ready for events out of their control and create initiatives to control what they can.
From a high level, we can consider two types of risk, business and environmental. Business risk include economical such as inflation, interest fluctuation and consumer demand swings. Then there are changes where your competitors release a new product, move to a more visible location or launches a marketing campaign that captures more market share. We are all familiar with supply chain disruptions as we saw empty shelves of products during COVID, shortages of computer and electronic components and choices of automobiles dwindling due to manufacturing challenges. Personnel changes can affect your business should your workforce find new career avenues and reasons to leave your company taking their experience and skills with them. The process of identifying environmental risk include asking questions such as, is another pandemic possible? How can global unrest affect the business? What if there are unexpected weather-related events?
What do you do? Here are some ideas to start.
- Identify as many risks as possible. Don’t be paranoid but realistic. We have the advantage of being able to look back and see worst case scenarios.
- Identify potential impacts. Play the “what if” game. It’s better to be prepared for something that doesn’t happen, then not be prepared when it does.
- Ask questions like “how well is my business prepared to handle a risk that comes to pass”? Prioritize highlighting those with high probabilities and high impact.
- Develop plans to mitigate starting with the elevated risks. Include the expense of the mitigation and the cost of having no plan.
- Ask yourself, how effective will the mitigation be and how effective does it need to be?
- Map out a best scenario if a risk happens to test the plan.
Once you have these thoughts and analysis on paper, develop your plan and leave it in a ready to engage mode. Hopefully by being prepared you will sleep better at night.