â€‹It is true that doing a business is a risky proposition; an entrepreneur is surrounded by a number of risks which she/he has to handle and manage them in a very effective manner. A mistake in identifying and carelessness in managing the risk can prove to be very fatal for your business which can cause irreparable damage or can take considerate amount of time to rectify the situation and again putting your business on to the track.
Therefore, it is very important to identify the risk and prepare yourself beforehand to face it, irrespective of your size of business, whether a startup company or a big organization. It is necessary to allocate some budget and time to prepare a detailed risk identification and management strategy. A well planned strategy can reduce the likelihood of an occurrence of negative event that can impact or harm your business.
(1) Is it a labor intensive, technology based or a manufacturing unit?
You first need to assess your business that what is the type of business you are running?
Prepare a detailed sheet of your products, services, suppliers, resources, technology, machinery and staff. This activity will help you in identifying the risk points in your business.
Now, think about the impact on your business in the absence or malfunctioning of any one or more above mentioned areas.
(2) How to handle the situation in the worst case scenario?
Let us suppose, you are running a solar lantern making business. Your hi-tech soldering machine & quality checking machine is out of order, but your staff anyhow decides to assemble the lanterns with manual soldering, escaping quality check and finally dispatching the lanterns to the customer. Your customer received a sub-standard product which may stop functioning at any time. There are chances that you may lose the customer, which will ultimately result in negative publicity. The worst case scenario helps in dealing with multiple risks simultaneously. In this example, the risks are
(3) Understand the level of the risk
After identifying the various types of risk involve in your business, you need to assess the level of the risk involved in the business. You need to determine the probability of occurrence of risk that you identified in the previous step and the amount of loss that can happen if that risk becomes a reality.
Let us understand with the help of an example:
The XYZ limited is a small solar lantern assembling company, which has the following levels of risk based on the probability of occurrence and its consequences:
You can see that the event which has high probable loss is considered as high level of risk and the event which has low probable risk is placed at the bottom of the risk table.
The evaluation must consider the amount of your control on that particular risk. For example, you cannot control natural disaster in your region but you can definitely control proper functioning of your machines. After identifying the levels of risk, you should make action plan chart which can tell you how fast a corrective action is to be taken for particular risk, this can be shown as below:
(4) How to handle and manage the risk?
There are majorly three ways to do it -
Reduce the risk: You can reduce the likelihood of occurrence of risk if you take corrective actions from time to time. For example:
If you find difficult in avoiding, reducing and transferring the risk then accept it, understand it and learn from it.ConclusionYour willingness to identify the risk and effectively managing it can provide your business a strong foundation. The proper strategy will help you to recover better and faster on the event of occurrence of the risk.