The risks of being in business

Starting, operating and managing a company or organization invariably comes with its own set of business risks. However, if owners and senior managers understand the risks involved and can identify industry risks relating to their particular market sector, a risk management plan can be developed to prepare the business for future unforeseen circumstances.   

What are the different types of business risks? 

Whatever kind of business you are in, there are always inherent risks. Risks can present themselves in various different formats so it’s important to understand the industry risks which pose a threat to your business so they can be minimized and where possible, eliminated through the implementation of a risk management plan.  

• Strategic risk - affected or created by an organizations business strategy and objectives.  
• Compliance risk – failure to act in accordance with industry laws and regulations, internal policies and best industry practices resulting in exposure to legal penalties. 
• Financial risk – unable to meet financial obligations, primarily a function on the relative amount of debt used to finance its assets. 
• Operational risk – any event which disrupts the business processes such as loss resulting from inadequate or failed procedures, systems or policies, employee errors, fraud or other criminal activity. 
• Reputational risk – involves the chance of loss due to threat or danger to the reputation and good name of a business or entity. 

Creating a simple risk management plan 

Once you are aware of the different types of business risks, you can begin to formulate a risk management plan. Following these 5 simple steps for your business or applying these steps for individual projects undertaken will enable your organization to calculate and manage industry risks.  

1. Identify the risk or risks 

2. Analyse the risk 

3. Evaluate or rank the risk 

4. Take action and treat the risk 

5. Monitor and review the risk 

Can business risks be avoided? 

Unfortunately, the risk is part of being in business. Risks can originate internally from within the business and also from external sources. The best way for owners, senior management and shareholders to be prepared to evaluate risk factors and conduct thorough research of the various industry risks and plan accordingly for threatening future events to control any potential damage and financial consequences. Although some risks taken may have been calculated, it’s important to ensure your organization also has a contingency plan to deal with any risk which arises which was not foreseen. Unfortunately, you cannot plan for everything, but if you have taken the necessary steps towards understanding and managing risks which pose a threat to your organization. Then at least you will know how to react and what action is required when they do arise.