Why Risk Management Should Be A Priority For Every Business
“By failing to prepare, you are preparing to fail.” ― Benjamin Franklin
If the Covid pandemic has taught businesses anything, it’s that everything can change and if you’re not ready and willing to adapt you might as well pack up and go home.
Being ready doesn’t necessarily mean having all the answers - sometimes that’s impossible especially when the unprecedented happens. But possessing a structured go-to plan that can quickly be modified to suit any crisis, and continually revisiting that plan even in the good times, is essential to maintain a practical focus on potential risks.
According to the Federal Emergency Management Agency (FEMA), 40% of small businesses go bust after a natural disaster and a further 25% fail within a year. AppRiver’s Cyberthreat Index of Business Survey reveals that 48% of small to medium businesses say a major data breach would likely shut them down permanently.
So how can you prepare for unexpected events? Here are the five cornerstones of risk management procedure:
Make a list of all the potential risks to your enterprise that you can think of. For example, you might own a bakery and see a possible threat from a sudden shortage of flour or other supply chain issues. Risks may be somewhat more benign than a natural disaster - they could include legal compliance changes, key staff retention, or any number of other factors that might tip your business from profit to loss. Revisit and amend your list on a regular basis.
Evaluate all of the potential risks you have identified and prioritize the likelihood of them happening. This exercise will inform your decisions about how much or how little in terms of resources to hold in reserve to mitigate impacts.
Implement process changes to reduce the impact of each risk as far as possible and a response plan for if it happens. Assign team members to each identified task so that in the event of a disaster everyone already knows what their role is and how to tackle necessary undertakings calmly and professionally. The idea is to limit the level of panic and avoid knee-jerk crisis management that could lead to avoidable fatal mistakes being made.
Review your plan continuously. If a risk has occurred but was missed, drill down to see how this could have been avoided or how the damage could have been minimized, and then apply the lessons learned to every other item on your list.
Maintain engagement by communicating the effectiveness of your risk plan to stakeholders on a regular, scheduled basis. Don’t be tempted to sugar-coat mistakes - see failures as teachable moments and a real opportunity to add further layers of protection against perilous circumstances.
“The time to repair the roof is when the sun is shining.” ― John F. Kennedy