The 4 Essential Business Risks Every Business Owner Must Know
Whether you are an SME or an international corporation, you will have been and are exposed to business risks on a daily basis. Unfortunately, no business is immune regardless of its size or industry presence. Risks and issues come in many forms including Financial, Operational, Supply Chain and Cyber. Each type of risk or issue is as detrimental to a business as the others.
The word risk seems to be becoming commonplace in our daily conversations both in and out of the office. The concept of risks and issues can seem confusing and these terms often used interchangeably. Those in the know are guilty of assuming that people know what risks and issues are and how much they can impact a business.
What are Business Risks and Issues?
We are not the defining authority on what a risk or issue is, nor would we want to be. Alike how we do business, we try to simplify and make topics and concepts easy to understand, regardless of your level of prior experience with risks and issues.
We face many uncertainties in life but only the ones that matter to us or could impact our ability to achieve our goals, are risks. For example, there could be a flight delay between East Midlands Airport and Paris tomorrow but if I’m not travelling by plane, this uncertainty is not a risk in my life. When explaining the difference between a risk and an issue here’s an example we like to use:
Every day you drive to work, there are various risks that could prevent you getting there. One area could be your transportation. If you drive a car to work, there is a risk that your tyre may blow out. However, if your tyre has blown out on your way to work, that’s an issue.
Put simply, a risk could happen, and an issue is happening.
Not all issues are preventable. However, by understanding the business risks you can mitigate them and put measures in place, in advance, to reduce the impact should they occur.
What is Business Risk Mitigation?
“Taking steps to reduce adverse effects”
If we stick with the car and tyre metaphor, there are steps that could be done routinely to reduce the risk of the tyre blowing out. You could check the health of your tyre regularly including the tread of your tyre, any signs of bulging or damage to the tyre. By doing this, you could identify prior to an Issue occurring that the tyre needs changing. Additionally, you could put measures in place to ensure that you can still get to your place of work if the tyre blows out, such as breakdown cover.
Knowledge is powerful and by knowing what business risks you face, you can make the right choices for your business before they have an impact. There are 4 broad categories of risk mitigation, the 4 ‘T’s:
Understanding that not all risks can or should be avoided. These can be for various reasons including the associated costs of risk management outweighing the risk itself. Using our car and tyre metaphor, we accept and tolerate that there is a risk that we may have a puncture.
Implementing actions that avoid exposure to specific risks altogether, or ceasing the activities that may cause the risk in the first place. We decide to catch the bus / train rather than travel by car. As a result, we won’t suffer a puncture on the car.
The most commonly adopted option, is a combination of risk acceptance and avoidance, thereby limiting some of the exposure of the business to risk. We ‘treat’ the risk by reducing the likelihood of it occurring eg. we check they tyre pressure, check for wear and damage etc
Often used a way for a company to focus on their core competencies. Businesses will hand over risks to a third party instead of dealing with it directly. In the case of our tyre, we buy 3rd party services from the breakdown company who will be able to assist when the puncture occurs.
What Impact Can Issues Have on Your Business?
When faced with an issue, it will typically have a negative impact on your business in one or multiple ways. Quite simply, issues cost businesses money. There are various ways issues can impact your business including:
- Reputation – Brand and business reputation is arguably one of your most powerful assets. It brings in new business and retains existing customers. If issues negatively impact your business, it can result in a loss of customer loyalty and positive brand recognition. For example, Samsung’s Note 7’s catching fire or the serious injuries that occurred at Alton Towers last year. Repairing this reputational damage can be a long and expensive process for businesses.
- Fines and Penalties – As a business you have customer deadlines to meet. Delays in meeting these deadlines due to supply chain issues can result in payment penalties. You may also be bound by legislations and regulations such as The Data Protection Act (soon to be superseded by the General Data Protection Regulation GDPR). Failures to cohere to legislations can result in costly fines. 3 years ago, Norfolk County Council failed to have the right processes in place which lead to the incorrect disposal of old filing cabinets. These Cabinets contained sensitive information and has seen them face a £60,000 fine this month by the UK Information Commissioner’s Office (ICO).
Our Top Tips
- Remember, common sense is not so common – be explicit and consistent about standards, processes and expected behaviours. By having clearly defined processes you can ensure that unnecessary mistakes do not result in issues for your business.
- Raise awareness – Be informative. Education is key to ensure that everyone within the business understands the reasoning and purpose of processes implemented to manage risks.
- Prevention is better than cure – don’t be afraid of uncertainty and risk, be prepared. Understand the risks to your business. This way, you can manage risks and be prepared to handle issues quickly if and when they occur.
For further information, support and training on how you can perform risk management within your business, contact Risk Evolves on 01926 800710 or firstname.lastname@example.org.