In business, risks are almost always present. Whether you’re venturing into foreign territories or investing in a new company, you must learn how to manage these risks. Otherwise, you could lose more than you gain. Today, we’re going to help you learn more about risk assessment, risk analysis as well as other critical things to know about managing business risks.
First, what is risk management?
What is Risk Management
Risk management is the process of identifying, understanding, analyzing, accepting and/or mitigating uncertainties in business decisions. In every business venture, an investor or owner foresees the potential of loss. Risk management is essential in calculating and managing that loss in order to take proper action.
One thing businesses need to keep in mind is that risk management is a continuous process. In the financial world, there will always be an endless stream of risks no matter which point of the process you’re currently in. The trick is to take calculated risks. Otherwise, you’re practically going to war unarmed.
What’s an example of risk assessment?
For example, you run a startup tech company. Part of your new project includes developing new technology. According to your schedule, it will take 4 months to complete this technology. However, your employees are saying that the reality of the situation is close to 6 months.
Proper risk assessment means a proactive project manager will already think of a contingency plan in case the technology won’t be finished after 4 months. A reactive manager, on the other hand, will do nothing and will cram a solution for the crisis in case the project isn’t accomplished after 4 months.
Risk management is all about foreseeing everything that could go wrong and be ready to have a solution in case something does go wrong.
What constitutes a risk management plan?
There are various ways to analyze the risks your organization may be in for. However, there’s a universal approach to it. If you want to make sure you are managing the risks properly, here are some steps to take.
1. Identify the risks
Whether you’re working on a new project or letting someone go, identify the risks involved. Consider everything that may affect the future of your business once you make that decision.
2. Identify the causes of risks
Identify what led you to this point of making certain business decisions. Has the employee become more of a burden than an aid? Are you looking to break new grounds or find new customers?
3. Identify the controls
Once you’ve identified and risks and causes, it’s time to identify how you can control these risks. Find ways to help reduce the likelihood of these risks from happening. This is where a contingency plan comes into play.
4. Establish whether or not the risk is worth it
There are low, high or extreme risks present in every business decision you make. So make sure that before you enforce that decision, you are fully aware of the risks you’re signing up for and have deemed it to be worthy to take.
5. Review and re-evaluate
Monitoring the risks you made is key to assessing whether or not it was worth making. It’s an essential part of the process that will help you make better business decisions every time.
Risk is an inevitable part of life. Whichever industry we’re currently in, we’re bound to encounter risks to help us grow and develop. The key here is to know which risks are worth taking.