Everyone has a fear of risk in business, but as an entrepreneur, people have to do risk management and manage many types of external risks and competition in their businesses. External risks are generally out of control for individuals, but other risks people can manage through their knowledge, experience, and intelligence.
different businesses have different risks depending on various factors and operations for example; the risk factors for a flower shop are short life spans of flowers, logistics management; delivery of stock on time, stock to be sold on the same day, and consumable inventory.
First, we should know the type of losses that people faces in their businesses:
1). Monetary loss 2). Reputation loss 3). Time loss
#. Types of risk in business :
Analyze the type of risks in business :
- Shrinking market
- Increase in company debt
- Increase in interest rate
you can also do P.E.S.T.E.L. analysis for categorizing future risks of your business and also to observe the change in your business environment. so that we will prepare a better strategy to tackle future risks.
- P – Political
- E – economic
- S – socio-cultural
- T – technological
- E – environmental
- L – legal
#. 5 steps to do risk management of any kind of business:
1). Risk analysis and consequences :
Identify the risks and determine how they can harm the company/business. Risk analysis is all about developing an understanding of the upcoming risk by knowing.
- Type of risk
- Impact of risk
- Time of risk
- Risk is good or bad
- Risk is economic or financial
- Stock market risk
- Whether the risk is hampering operations
Your team should analyze the risk, measure its intensity, and understand its impacts to avoid the negative impact of risk on the business.
2). Risk Assessment and Evaluation:
A company should decide whether it is ready for the risk or not. After the assessment and evaluation of the risk, and accessing the impact of risk on the business/company, you can control the risk, mitigate the risk, and write steps to prepare yourself and your team to handle the risk.
3). Risk Mitigation :
Decide and plan with your team how to handle risk or minimize risk. After identifying the risk and its impact, you need a plan on how to safe gourd your business from risk and its impact. This is possible with the help of risk mitigation Which includes.
- A. prevention plan
- B. contingency plan
You should have a detailed understanding of the following things while framing a risk management plan.
a. Assume aspect: You should assume the risk and accept it as it cannot be avoided. this involves analyzing the following:
- effects of risk in turn of time and cost
- monetary losses due to risk
b. Avoid: To avoid and mitigate the risk do the following thing:
- take steps to make changes in the process and system
- inform the team about reasons to change
- take feedback from them and encourage them
c. control: take action to control risk at the level that is acceptable to you.
d. transfer: you can transfer risk by making changes in your business in terms of authority, responsibility, and accountability. risk should be transferred in business to the individuals who can control and increase dependency on others.
e. watch and monitor: you should monitor whether changes in the business environment impact a change in your business risk.
4). Risk Monitoring:
You should monitor the risk and also find whether with existing are there some chances of new risks. to get an idea of the upcoming risk you should track the execution of risk management and mitigation. To monitor business risk focus on the following thing:
- changes in risk
- impact of changes or the internal environment like organizational structure and external environment like competition, product, suppliers, etc.
- whether you are bearing risk more than your appetite to meet business objectives.
5). Communicate and consult:
These steps involve the following;
- 1. keep management updated about the risk associated with the business.
- 2. take regular suggestions on risk factors.
- 3. discuss regularly with employers to deal with risk.
- 4. take regular feedback from team members on how to mitigate the risk.
#. Key outcomes of these 5 points :
- To manage risk 1st understand risk context.
- Do discussions with employees to mitigate risks in the best possible ways.
#. What are the challenges people face in ‘Risk Management:
risk management is a critical function in any organization that aims to manage potential risks and uncertainties that can negatively impact its operation and financial performance. however, risk management is not without its challenges. in this section, we will explore some of the common challenges that organization faces in implementing effective risk management practice.
1. Resistance To Change :
one of the most significant challenges in risk management is resistance to change. many organizations struggle with implementing new risk management processes procedures or tools as they may require significant changes to the organizational culture, structure, or operations. the resistance to changes can come from employees, managers, or other stakeholders who are comfortable with the status and do not see the value of investing in risk management. addressing this challenge requires effective change management strategies that involve engaging stakeholders communicating the benefit of risk management, and providing adequate training and support to those impacted by the changes.
2. Lack Of Resource And Expertise :
another common challenge in risk management is the lack of resources and expertise. implementing effective risk management practices requires investment in resources, such as personnel, technology, and infrastructure. however many organizations struggle to allocate sufficient resources to risk management, especially when other business priorities take prudence. additionally, risk management requires specialized expertise and knowledge. which may not be available in-house. in such cases, organizations may need to consider outsourcing risk management functions or investing in the training and development of their staff.
3. External Factors Beyond Control :
organization may also face challenges in risk management due to external factors beyond their control such as political instability, economic downturns, or natural disaster. these external factors can create new risks or exacerbate existing ones making it difficult for organizations to manage risks effectively. For Ex. the covid-19 pandemic creates significant operational and financial risk for many organizations requiring them to quickly adapt their risk management strategies to respond to new challenges. in such situations, organizations must be agile and adaptable with the ability to identify and respond to risks as they emerge.
organizations must be prepared to address resistance to change allocate sufficient resources and expertise, and respond to external factors beyond their control by doing so organization can improve its ability to manage risk and protect its operations and financial performance.