Business risk assessment is crucial for your business. In today’s regulatory environment enterprises are expected to have a good understanding of their risk profiles and have implemented the appropriate governance structure to mitigate their risks. But smaller businesses often struggle with realising their risk and are often faced with situation management rather than risk management.
Company’s risk assessment can allow an organisation to assess potential issues before they occur and allow management to capitalise on opportunities that might arise as well. Moreover, risk assessment is often a requirement for investment, loans and other financial commitments, especially or smaller businesses.
A psychometric risk-tolerance test benefits a business by allowing for the development of detail picture of investment and product strategies and ensuring an optimum level of investment risk or contained in the portfolio. A clearer relationship between the business’ goals and risk appetite will emerge and assist in the investment and overall decision-making process.
To begin your own business risk assessment:
Identify Company’s Risks
Consider what you define risk to be. A common definition of risk is an event that negatively influences your ability to achieve your business goals, often businesses will look at their cash flow, therefore identifying a cash flow risk, where they determine whether or not the cash flow of said company will be sufficient enough to meet its financial obligations.
As a rule, the business risk assessment will look at company’s ability to survive, successfully compete within the industry and maintain it’s financial strength, as well as positive public image, product quality, staff and so on.
Measure and track your risks
Once you have analysed your company’s risk profile you should begin tracking them. Some refer to this as a risk library. Basic risk framework of any organisation is quite stable, therefore, assessing your business properly the first time will give you a solid basis for future risk assessment.
Keeping track of your risks will help you define the risk that the company is exposed to and will help in a long-term by facilitating discussions of risks and following your progress in terms of mitigating the risk.
To help track your business risk you should try an assign a responsible individual to deal with the said dangers, something like a risk owner. This is a great strategy that will help your business manage the risk much more efficiently and help recognise the related controls required controls. This ensures that overall risk tracking is keeping up with fitting controls, additionally dedicated people are useful when it comes to understanding the risk itself. I.e. financial risks assessor should be restricted to financial division, as they are the best at controlling that part of the business, while risks associated with staff are better fit for HR department.
Potential and impact
Something that we haven’t discussed too much in this post is the potential and the impact of the business risk. There is something called a company’s risk appetite and it is based on the business’ evaluation of their balance between the business risk and ROI on any activity, it can be anything from introducing the new product or just general operating costs.
Managing this risk appetite is crucial for any business that is looking to grow, and that is looking for investment or loans. It helps your stakeholders assess the security of your business and will help you grow.
As usual, remember, that everything associated with a business will change! Risk assessment should be conducted on at least on annual basis, and certainly more frequently if there has been a substantial change in your company’s risk profile. Additionally, it is a valuable exercise to re-visit the company risk framework, as risks and definitions may develop and change from year to year.