Managing Business Risks: Top Ways to Identify and Lessen Them
Business risks can threaten the financial goals and growth of the company. There are different types of external or internal risks that may directly or indirectly hamper your ability to operate commercial activities. Having the skill of managing business risks lessens your company’s propensity to fail and enables it to grow further.
Identification of Business Risks
A sensible business plan would reduce the effect on profit, time, impact on the customer, and overall productivity if the risk becomes actuality. For any business, the capacity to address risk is a fundamental part of a strategic business plan.
Following are the major risks that companies face.
- Physical risk: Fires or explosions, building risk are common forms of physical risk. The hazardous material risk from substances like acid, toxic fumes, gas, the poisonous liquid is also a common form of physical risk.
- Location risk: Risks from location include nearby floods, storms, fires, hurricanes, tornadoes, and other natural disasters.
- Human risk: Major human risks that can hamper business include employee behaviour like alcohol and drug abuse by employees. Illness or injury to employees also can lead to a decrease in the productivity of an organization.
- Technology risk: Power cut and cyberattacks are common forms of technology risk.
- Strategic risk: Failed business decisions can lead to a strategic risk to an organization.
- Systemic risk: Occurring on a grander scale, systemic risks involve events that can drastically affect the entire system itself. Examples of these include recessions, wars, population trends.
Major Ways to Manage Business Risks
Risk management has been an important aid to effectively run a business, specifically when the market faces recession. A well-planned risk management strategy would provide lesser damage from unexpected risks an organization may face.
Following are the important ways of managing business risks.
Prioritizing a risk is the first step in creating a risk management plan. One can prioritize the risk by following a universal scale:
- Major risk
- Serious risk
- Moderate risk
- Minor risk
A risk that falls in the top category must be given top priority during the risk management plan. However, a risk that falls in a lower category but has a significant effect on more financial damage must also be given top priority.
Buying Risk Insurance
For risks having a significant financial effect on an organization, buying insurance is the safest option as it’s a fundamental safeguard option. Organizations can determine which type of insurance applies to them by assessing liabilities and regal regulations. Here are some insurance options you can avail of:
- Life insurance
- Disability insurance
- Professional insurance
- Completed operations insurance
Limitation of Liabilities
One can change to a corporation or limited liability company (LLC) if he/she is the sole owner of an organization. This would lead to a decrease in personal financial loss.
Implementation of Quality Assurance Programs
If someone wants a sustainable business, then a good reputation is vital. The key to success in any business is customer service and customer satisfaction. In order to assure high quality, one shouldn’t be hesitant to test his/her product and service. On testing services and products, there’s always room for necessary improvement. Also, evaluation of testing and analyzing methods would play vital roles in the determination of their quality.
High-risk Customer Limitation
If a business is getting started, then an implementation of a rule that customers with poor credit must pay ahead of time would help to avoid further complications. This can be done through effective procedures to identify poor credit risk far in advance.
Employee training is a must if an organization wants to flourish. Employees must be trained to focus on quality than quantity. Organizations shouldn’t set imposing goals for employees as it might lead employees to take unnecessary risks, which can lead to a bad image of the company.
Innovation is key to success, but innovating too fast can be risky and may lead to downfall. Take note, not all innovative products and services aren’t meant to be successful.
Appointment of a Risk Management Team
It is valuable to appoint a crisis management team. They would map out all the risks that can threaten a business and set up strategies in order to counter them. This leads to the prevention or mitigation of risks in an organization.
Business risks can lead to the downfall of your company if you’re unable to calculate them properly. Therefore, there are various plans you should execute before it’s too late. 3E Accounting Singapore helps you to identify, evaluate, prepare, counter, and eventually prevent risks so that your business won’t catch fire. Contact our team for more details and guidance on crisis management services.