Not quite long ago I wrote about risk management in a post you can check here and now, I'm taking it to the next level by discussing with you the five (5) essential steps of risk management. The following steps would help you know how to manage risks in business.
1. Identify the risk
Various things can pose a threat to a business and as an entrepreneur or businessman, you wouldn't know what to do if you don't know what the threat is and that's what makes this the very first step in risk management. Knowing the threat to the growth of your business and finances.
In the case of a new business venture, it is very normal for you to do your due diligence by finding out the various risks you might need to take as you proceed in that particular business line. This is just like a doctor carrying out the usual diagnosis before treating a patient and as you already know, it is very important. You need to be able to tell if the risk is just legal, environmental, regulatory or market risks (if your business is trading).
2. Analyze the risk
Having discovered or identified the risks after your business, you need to get to work on it and that's where analysis comes in. In some cases, you need to know why you're facing that risk, also know how you got there to prevent future occurrences.
While conducting your analysis, you need to keep in mind that the severity of all risks is not the same. While some might affect just a single department or product, some can affect the whole company and this is part of what you should know during your analysis. So, the severity of all the risks discovered or identified must be documented.
3. Risk Assessment
This is just another way of saying risk evaluation because this is where you rank the risks found in order of priority depending on their severity. Some may be marked low and others high. This helps you to have a view of their risk exposure and focus on what can be done.
Several low-level risks can be all the risks you are exposed to and that's not a problem as they can be easily worked on. But a single high-level risk would need to be worked on with alacrity as it poses a lot of danger to your company.
Risk assessments are in two(2) types: Qualitative and Quantitative Assessments. The most used is the qualitative assessment because most risks are not quantifiable, hence, the use of high and low-level qualifiers. The quantitative assessment is also not useless as it is very useful when the risk is in figures i.e money.
4. Treat the risk!
C'mon! After doing all those work, don't tell you were still expecting me to say some big words that still doesn't involve you tackling the risk. That's the next thing. We already got enough info from steps 1-3.
All of the risks have to be taken out as fast as possible from the highest level to the least of them as soon as possible so that your company can run smoothly again. This usually would be slower than I just said because you definitely need to devise a method to treat the risks or threats. ...and lastly!
5. Monitor and review the risks
Now, this is the final step and usually, it is two(2) in one because you have to monitor and review the risks. It is important to know that not all risks can be eliminated so you have to keep your eyes out for those risks that can't be eliminated because they pose a threat to your business. Examples of those are environmental and market risks and you can do almost nothing to them.
When it comes to the review, you need to keep looking out for new risks that might show up later for your business. Some risks might be easily detected by computers, others not so much.
Till I write again...
I am Pearlumie
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