What is Risk Management?
Learn about what risk management is, how to do it, and why mitigating risks for your business is crucial to its survival.
Risk management is a process in which businesses identify and assess any potential risks that may negatively affect the businesses operations. Risks can commonly carry both positive and negative consequences. Risk management refers to the ways in which negative risks are managed and the ability for potential opportunities to be realised. There are numerous types of possible risks, generally these revolve around three mains types; hazard risks, uncertainty risks and opportunity risks. While it is important to identify risks, the risk management process cannot be viewed as as guarantee against risks; accidents can still happen.
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Categories of risks in small businesses
Whilst there are many types of risks common for many businesses, putting risks into categories allows businesses to target specific areas within their operations. For example, a commercial risk may require a SWOT analysis to evaluate the strengths, weaknesses, opportunities and threats to the particular area. You will come to realise that categories of risk management commonly intersect with other business processes/procedures. For example, with quality assurance and OH&S procedures. Common risk categories in small businesses include;
- Legal & regulatory compliance
The risk management process
The risk management process consists of a series of steps that promotes continual improvement These steps commonly include;
- Identify the risks (what/why/how can these risks happen?)
- Analyse the risks (risk = consequence x likelihood)
- Evaluate the risks (what is the level of risk? Does the risk require treatment?)
- Treat the risks . (options for controlling the risk)
Executing risk management
Risk management is the responsibility for anyone operating a small business. It is essential for business owners to be conducting risk management processes as they usually cannot be outsourced. Risk management procedures should be executed at strategic planning stages and operational stages.
Sustaining risk management
Once started it is important for risk management to become a continual process. To ensure risk management procedures are maintained, they should be implemented into all planning stages of the businesses operations. With this, existing risk management frameworks should be reviewed and left active. This way business owners can ensure risks are being appropriately managed and can also identify any new risks.
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Zac is a consultant at Lawpath, Australia’s largest and fastest growing online legal platform. Since joining Lawpath, Zac has assisted 1000s of startups and small business’s with their legal needs.