From a Post by: Peter Maclean
Risk management is a vital component of business management training and good management practice. Effective risk management is one of the most valued qualities of good leadership.
Effective business owners and managers understand that risk management should be an intrinsic part of their business culture. Rather than viewing it as some kind of extra business activity or as a separate program, risk management must be integrated into a whole of business approach. Risk management becomes everybody's responsibility.
To manage risk effectively in the small business environment, effective and successful business owners have a clearly spelled out risk management model. This model enables all employees to manage the risks wherever they are in the business.
The five key areas that are in place in the successful small business risk management model are:
Understand What is Going On
This element requires all people within a business to have an effective way of realizing and understanding the complexity of the problems and concerns that they face, both on a strategic level and on a day-to-day basis, in their business.
Effective business owners train themselves and their staff in problem resolution and decision making skills. They inculcate these processes into every facet of their business.
Research and experience shows that in a crisis situation, when managing perceived or real risks, people will always revert to what they have been trained in and prepared for. Alternatively, they may act out of instinct. This is often not reliable and can sometimes lead to disaster.
Identify Potential Threats
Having clearly understood what is going on, effective people in business are able to make a realistic assessment of the potential business risks. These threats must be identified in an ongoing, annual cycle of analyzing the areas of concern that a business has. Usually, these threats can be identified within the small business plan and the objectives and the initiatives that have been spelled out in that plan. An example may be succession planning. Being able to identify such risks before they occur is the ideal way of reducing risks from eventuating.
Evaluate the Threat Profile
Identifying the most likely risks involves having a process that prioritizes the risks and measures their seriousness and probability. Once this overall profile threat has been articulated, actions can be taken to address it. Every successful business puts these processes and analytical tools into the hands of all their employees to ensure that the threats are addressed and action plans are established.
Determine What Needs to be Done
Once a course of action has been identified, it has to be enacted with the proper accountabilities, responsibilities and due dates assigned for completion.
The possible actions for managing risk include:
•Avoid the risk altogether
•Reduce the likelihood of the risk occurring
•Reduce the impact of the risk
•Transfer the risk
•Accept the risk
Monitor and Evaluate the Actions Taken
As with all action plans, once completed, the results and outcomes need to be watched to ensure that the desired result was achieved.
Learn about Barringtons Risk Management Consultancy here.