Managing risk

No matter how good our strategy or business plan, a key factor in whether or not we achieve business success is the way we deal with uncertainty or risk. Risks are generally unplanned events that can have a positive or negative impact on business performance, and they can arise as a result of a whole range of internal or external factors. They are defined by ISO 31000:2009 as “the effect of uncertainty on objectives”.

A simple risk management system that identifies and plans for these events can be enormously helpful, and can avoid the need for management teams to deal with risk in a purely reactive way which has the potential to result in crisis management. The following simple 5 step process to developing a scored risk register can be adopted by any business:

  1. List out significant events that might impact the business. These could include loss of a key customer or staff member, supplier failure, competitor price reduction. They could also be opportunities, such as a significant supplier innovation or customer growth.
  2. Score the likelihood of the risk arising from 1 to 5, with 1 being highly unlikely and 5 being certain.
  3. Score the impact of the risk from 1 to 5, with 1 being minimal impact and 5 being potentially catastrophic.
  4. Multiply likelihood by impact so a risk with likelihood of 2 and impact of 4 would score 8. This will give an indication of the most significant risks to the business.
  5. Consider mitigation ie what can be done to minimise or accentuate the risk to the business, bearing in mind that a risk can be an opportunity or a threat. Mitigation can include taking action either to reduce the likelihood of the risk occurring, or action to reduce the adverse impact of the event.

 

Once the risk register has been developed it should be reviewed by the management team on a regular basis. If it’s helpful, categorise the risks according to whether they give rise to an opportunity or a threat and deal separately with those that offer growth potential and those that offer a negative challenge. It’s a simple and effective tool that hands control back to business owners and allows key issues to be addressed in advance of need.

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