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8 Things That You Need to Know About Risk Management


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8 Things That You Need to Know About Risk Management

For many people, the term risk management conjures up images of unforeseen crises that disrupt your business, followed by a frenzied response. This happens in all sectors, but the truth is, with proper risk management it should rarely be that way. In reality, every aspect of your business carries some degree of risk. Part of being a successful leader is the ability to look ahead, foresee potential risks and consider how you can use your resources to address them.

Your risk management plan is not a crisis response plan. It’s an ongoing part of your business strategy and is a continuous exercise you should undertake as you strategize, execute, and grow.

Here are some key points to remember as you incorporate risk management into your business strategy,

Make a Plan

“Planning” is simply another way of saying - “Think ahead.” Right now, while the waters are calm, think about possible storms emerging and how you should handle them. Don’t wait to be surprised - identify the risks beforehand, and ask yourself how you should respond. Think about the financial, personnel, and organizational resources you might need to keep the business in line with its strategy.

Be Proactive

Effective risk management is proactive, not reactive. We have all seen organizations caught in the grip of reactivity, where actions have little relationship to overall goals, other than to stay alive. This approach is not part of a long-term mission. The risk management process – identifying the threats, considering the options and making a plan – should be purely proactive.

Identify the Risks

Don’t fool yourself into thinking you can eliminate risks. You cannot. But you can manage them. The first step is to understand what a risk looks like. There are two helpful exercises in this regard: a “SWOT Analysis” and a “PEST Analysis.”

Conduct a SWOT Analysis

“SWOT” Analysis examines your Strengths, Weaknesses, Opportunities and Threats. Have your leadership team submit their perspective for each of these areas.

Then look at the list. Do you see those “Ws” (Weaknesses) and “Ts” (Threats)? You have just taken a big step toward identifying the risks.  Within the same list, look at the “S” and “O” columns. Those Strengths and Opportunities are positive events that promote your goals. Identifying those factors is equally important in strategic planning.

 

 

Conduct a PEST Analysis

There is also a PEST Analysis – the Political, Economic, Social, and Technological factors that affect your business landscape.  You should have a thorough understanding of these factors.

Suppose you are a local transportation company, serving people with special needs.  What would happen if a government agency decided to cut funding for those programs? Would your ridership drop considerably, or even disappear? On the other hand, what would happen if the government introduced an incentive for people to use your transit services? Could you handle the increase in ridership? Would a competitor come along and try to take a piece of the action?

Thinking about these things ahead of time can make your strategy a little easier when the time comes.

Prepare your Response

For each risk you identify, quantify it according to the seriousness of its potential impact. Is it a high, low or medium risk? Similarly, for each risk, consider potential actions and the amount of resources you are willing to expend. In some cases you may believe that your company is resilient enough to handle the impact. That’s great. In those cases, you can just accept the risk. On the other hand, there may be risks that debilitate your company. Those risks warrant a significant amount of resource to avoid. In most cases, the risk will fall somewhere in the middle – it cannot be avoided or accepted – so your strategy should focus on mitigating the impact.

Be Continuous

Risk management is not a one-time exercise - it’s a continuous thing.  Don’t just think about it once then move on to something else. As a leader, it should be on your mind constantly. Rely on a variety of sources to inform yourself about trends in your industry and the economy with an eye to spotting risks and revising your thinking about them.

Take a Long-Term Perspective

Remember– the road is long. Always keep a long-term perspective. You may encounter risks along the way that set back your company. Accept it as part of the business environment and keep moving forward. But also take it as a reminder that risk management is an essential part of business strategy and you should be putting it into your planning. 

Your Turn

Does your company incorporate risk management into their strategic plans? How has it changed your strategy? Let us know on social media and subscribe to our blog if you found it useful.


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About the Author


Brian Beattie

Brian Beattie's avatar

Brian Beattie is the Chief Financial Officer at Volaris Group. Besides overseeing the financial health of the company, he works closely with Volaris’ legal and M&A team on all new acquisitions. Brian is an expert on every stage of the M&A process – from sending out the non-disclosure agreement to executing the sales purchase agreement.

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