Risk management encompasses the identification, analysis, and response to risk factors that form part of the life of a business. An effective system will help maintain the safety of staff, whilst protecting business resources. It is an essential part of effective business planning and is vital for all businesses. Risk management helps you make better business decisions. It involves reducing the things that could negatively impact your business but also highlights opportunities that could offer a positive impact.
Types of risk
- Opportunity-based risk from choosing one option over other options (such as buying a new property)
- Uncertainty-based risk from uncertain or unknown events (such as natural disasters or loss of suppliers)
- Hazard-based risk from dangerous materials or actions (such as using hazardous chemicals or working at heights).
How can you manage risk in your business?
Decide what matters most
- Before you create a risk management plan, think about which areas of your business it will refer to. Some of the internal and external items to consider when creating your plan are:
- Social, cultural, political, and regional issues
- Economic, technology and competitive trends
- Government policies and law
- Your business aims, policies and strategies.
Identify the risks
- Working out the risks to your business could be as easy as thinking about what could go wrong, and how and why it could happen. You might also need to research -
- past events and risks
- possible future changes to your business environment, such as changes in economic trends
- social and community issues that could affect your business.
Analysis of the risks
- After identifying the risks to your business, it is time to work out which ones are a priority. To analyse the risks of an event, you should first look at:
- damage the risk will cause
- likelihood of the event occurring.
Develop an appropriate response
- Once you have identified the risks and which ones are of a higher priority it is important to mitigate them and prevent their occurrence. Develop your plan to treat risks, including-
- each risk type and the level of risk it poses to your business
- suggested strategies to avoid or improve the impact of each risk.
- timeframes for each strategy
- who is responsible for the strategy implementation?
- resources required, such as money or external help
- future actions such a regular checking and updating of risks.
There are risks involved with every business decision you make. Decisions that could affect your business survival and growth. It is important to understand the basic principles of risk management and how they can be used to mitigate the effects of risks on businesses. For more information please visit the Business Risk Government website or contact our team.
The Money Edge | Cassie McAdam | Bundaberg