How Can I Identify Risks To My Business?
Before any manager can assess the impact of risk on their business the first step must always be to identify the different types of risk that may appear. Once this has been done steps can then be taken to mitigate the effect of the risk or to try to quarantine the threat before it can do real damage. Ignored or under-played, risk can threaten both operational and strategic direction, planning and resourcing.
Stage 1 – The Preventable Risks.
These are normally risks that appear from within the business and, to be somewhat harsh, represent a clear failure in internal mechanics and planning as they should have been effectively factored-out of the plan at the design stage. This might arise from the unplanned activities of staff deliberately breaching protocols or challenging operational routines – either way safeguards are needed to limit this effectively. Forget the comfort blanket of tolerances – your poor planning caused this and it is your responsibility to get it sorted. Learn from the experience for next time – only a totally foolish manager would not do this!
Set up monitoring and control systems into a clear and effective Dashboard and watch this closely. Devise a strong corporate culture which clarifies exactly what is, and is not, permissible. DO NOT be coy here – spell it out and monitor performance with sanctions if things go bad.
Stage 2 Strategic Risks.
Given that strategy is at best an inexact science and that substantial, often tentative developments at the macro level are subject to failure and revision, strategy is the main risk area facing any business. Here the risk is an accepted part of the development balanced against the joy of entering and succeeding in, say, a new market or in delivering real competition for a rival producer or service provider. Big returns involve big risk. Was it ever so; nothing here comes from being shy, coy or restrained as long as you are prepared to weather the consequences.
The trick here is to scientifically weigh-up the probability of success with a rich picture of scenarios where the risks you identify actually come to life. Done properly this will allow you to make even bolder risks with bigger potential gains, given the security of really seeing the consequences of that action.
Stage 3 External risks.
These are those risks that are due to forces or pressures over which you have no control; serious and sustained economic instability and stock market disasters are recent disasters which cannot be controlled and have to be borne and suffered with the hope that survival is possible. All you can hope for is that you were savvy enough to see this coming and able enough to minimise the pain that they will cause.
The reality of business planning and risk
Generally we will always over-estimate our ability to manipulate factors that contribute to risk; huge numbers of drivers run vehicles with no insurance, tax or recognised mechanical checks, presumably with the mind-set that nothing will happen and if it does then it is just plain bad luck. Over confidence comes from excitement – drilling into our rival’s market, increasing our profits at their expense – heady stuff but flawed!
There is also a strong tendency to read into data and information a level of knowledge that just does not exist. Very few organisations have true Knowledge about their operating environment, a few more might have some workable Information but the remainder just have plain old Data, which is absolutely NO basis for making any real decisions with. The more Data you own the more risk you are facing. If the Data looks “good” then it takes on a value it does not have and you subconsciously read into it the path forward. Sheer folly.
No organisation ever succeeded without taking on some significant risks but business history is littered with the casualties who did not do this well.
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