Business owners are faced with constant challenges and decisions that often involve taking risks.
While risk-taking can be a necessary part of running a new business, entrepreneurs need to make informed and thoughtful choices to avoid unnecessary damage to the business.
To manage risk effectively, business owners need to be proactive in identifying and responding to risks before a crisis strikes.
The first step to managing risks well is identifying them. Both tangible and intangible items can pose risks for your business. Entrepreneurs may find it easy to list the physical items at risk such as assets and infrastructure, yet may neglect intangibles such as injury to staff, loss of important business information, fraud, product recalls, supply chain disruptions and so forth.
Calculate your risks
Once the risks have been identified they should be ranked on the likelihood of occurrence and the severity of consequence it might impose on the business. This risk criteria helps to form a risk rating which can rank the risk from low to extreme. The risk rating helps you to determine what risks need more time, attention and resources.
Manage your risks
Finally, the risks need to be managed effectively. There are four ways of managing risk including avoiding the risk, transferring the risk, reducing the risk and accepting the risk. Avoiding risk is not always the
best or viable solution. Transferring risk is a common way of avoiding damage as the risk is no longer your problem, for example, insurance and product warranties.