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How to identify your biggest business risks
In the context of business, ‘risk’ refers to anything that threatens an organisation’s ability to meet its objectives. For a manager with a hands-on role in a business, it’s easy to assume that these risks are going to be obvious, especially if you are familiar with your firm’s processes and operations and if you keep a close watch on what is happening within your industry sector.
But identifying risk is about more than simply casting an eye across your business and drawing up a list of potential threats. It requires a systematic approach, otherwise you are in danger of missing some of the less obvious, yet still significant threats that your business is exposed to. To help you ensure that no stone is left unturned, here’s a step by step guide to risk identification.
Clarify your business objectives – and how you intend to achieve them
You have a plan for your business, and on a fundamental level, risk identification involves spotting the ways in which that plan could be blown off course.
As such, your business plan provides a useful starting point for your risk identification process. Be as clear as possible on WHAT you are aiming to achieve, HOW you intend to achieve it and WHEN you intend to achieve it by.
Identify the broad threats faced by your business
Is there a change in the law around the corner that could jeopardise your current way of operating? Have certain risks (information security, for instance) grown in significance since you last carried out a business-wide risk assessment? More generally, what headwinds is your business facing in areas such as the state of the market, your ability to hire staff, the presence of competitors and client expectations?
Your business does not exist in a bubble, and it’s important to keep updated on what is happening on an industry level. Your industry press, trade association or regulatory body can be a useful ‘early warning system’ here, and a good example is the Solicitor’s Regulation Authority’s regularly updated Risk Outlook document.
Draw up a list of risk categories
Use this as a starting point for thinking about the specific risks that have the potential to impact your business. These categories may include the following:
- Security including online data security, theft, accidental loss, internal or external fraud, breach of intellectual property rights.
- Staffing including the loss or incapacitation of key employees, internal conflict issues, problems recruiting and human error.
- Regulatory and legal including the introduction of tougher compliance rules, changes to the tax regime and the risk of disputes involving clients.
- Physical including damage to your property and equipment, fire, flooding and vandalism.
- Services including interruptions to the delivery of power, water, internet connection and essential raw materials.
- Economic and market including global financial events, increased competition and changes in client expectations.
Depending on your industry, there may be other important areas of risk to add to this list.
Go through your processes and ask “What if?”
With your management team, look carefully at your critical business activities to consider what could jeopardise them. For instance, if you are involved in project work, it might be useful to draw up a flowchart detailing each of the steps required to find and bring on board a new client and bring a project to a successful conclusion.
Next, with reference to your list of risk categories, go through that flowchart and consider what future events could affect successful completion of each step of the project. Asking “What if?” is useful here: e.g. “What if important documents were destroyed or compromised through a cyber security breach?”, “What if a newly-signed client was to go out of business before the project was completed?”.
To assess the significance of each risk, ask whether and to what extent it will have an impact on your wider business objectives. As an illustration, you highlight the possibility of staff error causing a critical deadline to be missed. You may conclude that this could have a negative impact on several of your business objectives: lost income from that specific project and the fallout from the likely resulting client dispute could affect your bottom line profits, while the negative sentiment it causes could hinder your goal of increasing your client base.
Using this systematic approach enables you to uncover your biggest business risks. Next comes the task of addressing them, in other words, minimising the chances of them happening, while making sure you have the right level of protection in place if they do occur. For expert help with all of this, Bluefin Professions can offer sector-specific advice and tailored insurance solutions to ensure you are in safe hands.