02 Nov How to Identify Business Risk
As a business owner, business risk is an important factor to identify when making important decisions. Sometimes, it is impossible to be aware of all of the underlying factors that could affect you. Here, we will discuss important factors to note for your business.
What is Business Risk?
You can define business risk as a potential threat to the business’s ability to achieve its financial objectives or goals. In other words, the term risk, in the business world, is all about a business’s plans not going according to plan. This can set them back in trying to achieve long-term goals.
It is pertinent to mention that one can’t blame a business owner for such risks cropping up, as numerous internal and external factors actively contribute to them. These factors may include increment in the prices of raw materials needed for production, growing competition, or alterations in existing government policies and regulations.
How to Identify Business Risks?
Every business, regardless of how it works, is prone to risks. Considering the fact that businesses can’t avoid them, they must address them right away to reduce or minimize any negative impacts. Hence, the first step when it comes to risk management is to identify risks and drafting a sound, effective, and solid risk management strategy.
Ways to Identify Risks in a Business
1. Break the big picture down and categorize
It can be quite overwhelming to identify risks when starting off the risk management process. We suggest that you start with analysis at a higher level. To put it precisely, ask yourself what are some of the most obvious things that could possibly go wrong when it comes to your business or the industry. The answer to this question depends or can be based upon the strategies your business thrives as well as its day-to-day activities.
Moreover, risk is always multi-faceted. You can break down and consider many categories. The categories can be financial, operational, technological, legal, and so on.
2. Have a pessimistic approach
We agree that being overly pessimistic is in no way an approach to run a business. However, it can be quite helpful when it comes to identifying risks.
Therefore, sit and ponder what can be the worst turn of events that can happen to your business.
Also, remember to avoid being overconfident here and thinking that there is absolutely nothing that can go wrong. The key here is to challenge all of the assumptions and identify potential risks. This way, you can prepare to combat them.
3. Seek employee feedback on a regular basis
Everyone, be it the frontline staff or the CEO, will have entirely different perspectives regarding risks they encounter while going about their jobs. However, employees can be the greatest source here when it comes to locating and identifying potential risks.
All employees, including key stakeholders, will definitely have some valuable insight on risks that they might come across in their day-to-day business operations. Oftentimes, these can be beyond an owner’s imagination.
Hence, it is imperative for every business to carry out surveys and collect responses and feedback regularly to know where the risks could lie.
Making sure you take all outside risks is an important step to take for all business owners. Talk to us today to get a free risk evaluation.
To find out more, contact one of our talented Risk Advisors today!