There will always be risks associated with running a business. Some of these risks are known – and can be prepared for – while others are unknown.
The best risk management strategy involves evaluating and preparing for the known risks so that you know exactly how you would react should they arise. However, you cannot plan for everything so another aspect of risk management is how you respond when an unexpected risk hits.
External risks are out of your control; these include things like interest rates, weather, exchange rates, and the political climate. Internal risks are in your control and can be protected against and prepared for; these include lack of insurance, information breaches, non-compliance.
Potential risks facing your business
Potential risks can be split into three categories
Physical risks
These include risks to your premises like fire or flooding, and also include risks associated with hazardous materials
People risks
Embezzlement, fraud, and alcohol and drug abuse are all risks associated with personnel in the workplace
Technology risks
Power outage and system failure are common risks which fall under this category.
Once you’ve determined the risks to which your business may be vulnerable, the next step is to prioritise your preparations to each based on how likely it is to happen. You can use to following scale to categorise risks:
- Very likely to occur
- Some chance of occurrence
- Small chance of occurrence
- Very little chance of occurrence
The risk that falls into the first category should be your top priority and plans should be put in place to mitigate the potential damage should this risk take place.
However, if a risk that is less likely to occur but would have a greater impact on your business’ profitability or viability, then this should take top priority above a risk that is more likely to happen but would cause less financial damage.
So once you know the risks how do you protect yourself against them?
Prevention is better than cure so the first and most obvious answer is to remove the risk where possible. If a certain activity carries with it a risk that is too great it may be the best option to discontinue that activity. If this is not possible it may be worthwhile to consider how to achieve the same result through a different process or using different materials which carry less risk.
While foreign exchange rates are classed as an external risk that are technically out of your control the Bank of Ireland Global Markets team can help you to take currency risks out of your business. Our treasury team can help you understand your business foreign exchange needs and discuss your currency risk management options. This can help protect against the adverse impact of market movements.
If you cannot avoid the risk entirely your next option is to reduce your vulnerability to risk. This is done in two ways – reducing the likelihood of the risk occurring and reducing the impact of any potential risk should it occur.
Reducing the likelihood of the risk can be done through:
- Staff training
- Compliance with legislation
- Quality control processes
- Auditing
- Regular maintenance
- Limiting the impact of a potential risk should it occur can be done through:
- Off-site date backup
- Emergency procedures
- Public relations
Once you’ve done your best to avoid and reduce your exposure to risk the final step is to ensure that you have adequate insurance in place to protect your business and employees. Many risks are insurable and insurance can give you peace of mind as you safeguard your business against risks.
Risk is an unavoidable aspect of running a business and their consequences can be destructive but there are ways to reduce your exposure and minimise your damage. Risk management is a form of insurance in itself and a good plan will help you to reap the rewards of your efforts to make your business successful.
To learn more about how to ensure your business’s financial wellbeing, click here
The information contained in this article is has been prepared by Bank of Ireland (“BOI”) for information purposes only. BOI believes any information contained in the article to be accurate and correct at the time of publishing.
Image: Sammie Vasquez on Unsplash
