In our “writing a business plan” article, we highlighted “managing risk” in a bullet points because it’s an essential element in your business plan. This article explains further why we feel that this (managing risk) is another factor to consider when writing a business plan. Strictly speaking, these aren’t the only risk assessments your company should undertake but it is a small guideline to show you how one factor can possibly effect the other.
Identified Risk Assessment
The image above identifies risks in a number of key areas especially for a start up business. Risk assessments should not be ignored, it is an important ongoing cycle acknowledging possible changes to your business environment. It might pose a threat to the success of your business as one factor can have a knock on effect on the other.
Strategic Risk Management
Strategic risk objectives are the core of an organization’s strategy. Core hazards such as weak governance, weak leadership, poor strategic decisions and administrative errors can adversely affect the organization for some time.
Financial Risk
This includes:
- Credit risk – lenders failure to supply capital
- Financial structure – Business transactions
Market Risk
Market risk can be associated to assets or liabilities. There could potentially be some risk of losing business deals due to your competitors performance.
Liquidity Risk
Cash flow can be tied up or committed to things such as loans. Other investment plus other factors which can make cash flows limited thus reducing liquidity.
Operational Risk
Is the machinery up to date? Is the project situated in a high risk area? There are many factors that can affect the day to day operations.
Compliance Risk
These risks are associated to businesses that need to comply to local laws and regulations within its industry and it protects the business in an era of rapid regulatory change.
Process For Managing Risk
Within the highlighted risks above, there are 6 key areas of identifying, assessing and implementing a strategic plan to mange risk. These factors should also loop.
- Identifying, assessing, and prioritizing risks
- Developing strategies and policies to measure risk
- Designing policies and procedures to mitigate risk
- Implementing and assigning responsibilities
- Test the effectiveness and evaluating results
- Revising policies and procedures as necessary
To help minimize risks there are a couple of things you can consider. Use your business plan as a reference. It’s not only a 5 year plan from the beginning of company proceedings but you can measure it’s growth and performance and use your business plan as an evaluation tool.
Spreading the risk
This involves investing in your own company, such as investing your assets or investing in start up projects that help your supply chain so it’s not in direct competition or in alternative investments to save or invest to grow. **Terms and conditions apply.
Nurture your team
Employ strategic personnel with relevant industry qualifications and invest in team training. Communication is key to keep your company performing and growing. Input from the whole team is valuable and is recommended which brings in strength and new ideas.