Risks have always been and will continue to be there in all sorts of businesses. Everyone needs Risk management. Regardless of the industry or business type, efficient and effective risk management under pins the value of an organization.
Risk management plan in Australia doesn’t aim to reduce the business risks, but rather to manage it as proficiently as possible, while offering the maximum returns to share holders and business owners from business-specific risk exposure.
An Integrated Approach to Business Planning
While risk management helps to forecast the potential business risks to minimize or avoid their impact, integrating it with a well-thought consulting business plan defines the strategic direction of your business during an annual period or the operating cycle.
It’s important to create a business plan outline. A strategic business plan helps with multiple things:
• It defines the steps needed to reach the targeted levels of success and achieve strategic objectives, by decomposing it into performance plans that are supported by specific procedures,policies and integrated metrics.
• It linksKRIs, KPIs andsupporting budgets with the performance expectations.
• It focuses resource allocation on serving the strategic business needs whilst managing any potential risks.
• It links the performance expectations to the reward system using a compensation structure that can be accustomed to risks and is realistic for both the shareholders and the executives.
Whatever your business, it’s likely that you’ll have to make a decision that involves an element of risk to some extent.
Risk assessment plan is the best bat you can make against project upheavals. While business planning, it’s important to define the loss drivers, incongruities and soft spots that could considerably affect the business execution and performance.
Risk involves the possibility of something going wrong, and its pessimistic consequences.And, if you’re hit by an effect that you hadn’t intended for, your business reputation,cost and time could be on the line.
What is Risk Analysis?
Risk Analysis is a process that helps you find and manage the potential problems that could challenge the critical business projects or initiatives. The risk assessment process can be complicated, as you’ll need to bring in comprehensive information such as financial data, project plans,marketing forecasts, security protocols and other key information.
To perform a Risk Analysis, you must first spot the potential threats that your business face, and then assess the possibility that these risks will materialize. Risk assessment tools such as SWOT Analysis and Failure Mode and Effects Analysis are used to identify and prioritize risks for evaluation and resolution.
The risk analysis process is as follows:
- Identify the Risk
- This is the first step of risk analysis where the potential risks are identified and possible risk sources are reviewed.
- Using risk analysis tools, the potential risks are categorized and prioritized. The process of prioritization helps the team to easily manage the high impact risks that have a high possibility of occurrence.
- Evaluate the Risk
The conventional problem solving process moves from identifying the problem to providing a solution. Although, before you try to identify the best way to manage risks, it’s a must to determine the root causes of the identified risks.
Questions the team will ask include:
- What would cause this risk?
- How will this risk affect your project?
- Develop Risk Responses
Now the project team will start evaluating the possible solutions to manage the risk or perhaps, prevent the risk from taking place. The project team asks questions including:
- What can be done to minimize the possibility of this risk?
- What can be done to handle the risk, should it take place?
- Create a Contingency Plan for the Risk
- The ideas brainstormed for reducing or eliminating the risk possibility will be converted into tasks.
- Those tasks dedicated to manage the risk, should they take place, are customized into short contingency plans. Should the risk happen, they can be brought into action, thereby decreasing the need to manage the risk by crisis.
How is Project Risk Management done?
Once you’ve identified the business risks you face, it’s time to look into ways of managing them.This may include avoiding the risk, sharing it, or accepting it while minimizing its impact.
- Risk Avoiding
In some instances, you just want to avoid the risk altogether. This simply means passing on a project, skipping a business venture or not getting involved in any high-risk action. It’s definitely a good decision when taking the risk offers no benefit to your business, or when the cost of addressing the consequences is too high.
It’s important to understand that whenever you avoid a possible risk, you might lose out on an opportunity. Perform a What If Analysis to consider your options when making your decision.
- Risk Sharing
You can also choose to share the potential risk with other people, businesses, teams, or third parties.
For example, you share risk when you associate with another business in a combined product development project or when you insure your inventory, or your office building with a third-party insurance company.
- Risk Acceptance
The last option you have is to accept the risk. This option is typically chosen when there’s nothing you can do to mitigate or prevent the risk, when the potential benefits are worth accepting the risk, or when the cost of insuring against the risk is more than the potential loss.
For instance, you might accept the risk of extending the launching date of a project if the sales will still cover your costs.Before accepting a risk, you must conduct an Impact Analysis to determine the consequences of a risk.
It’s always recommended to come up with a contingency plan to handle the unexpected consequences.
Improve your Business Performance with Us!
Even in the good times, businesses can be caught out by the unexpected. Organizations need to have processes in place to make sure that they meet the compliance needs and mitigate risk.
At www.businesspropel.com, we follow a step-by step approach to understand, manage and reduce business risks.
We understand risk isn’t one dimensional, which is why we provide an integrated range of multi-faceted business risk management and risk control services, including consultative services, customized risk assessments, targeted training for managers and employees, and professional assessments for all lines of businesses.Top