It is a fact that any business, regardless of its size or years of trading,is surrounded by multiple layers of risk. These risks can come in many different forms, and all have the potential to adversely impact the functioning and profitability of an organization.
Some risks that are external to a business such as rising interest rates, changing political stances towards business (including new legislation), and environmental catastrophes are outside the control of an organization.
However, it is within the ability of any business to effectively control and minimize the risks that it has influence over. In this article, four key ways in which businesses attempt to control risk are discussed.
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By Using a Risk Register
Many organizations operate a risk register at a corporate level. This can take the form of a spreadsheet or dashboard which lists every identified risk that the organization faces in its day-to-day business. Risk registers tend to work on a likelihood and consequence rating system.
As an example, a business may have premises near an earthquake fault line. The area may not have had any form of an earthquake in recent years, but the last one was a major earthquake that caused significant building and utility damage.
As a result, an organization would be likely to rate the risk of earthquake damage as a low likelihood event but with major consequences to the business if it did occur.
By building a comprehensive list of the risks an organization faces, including their likelihood and severity of impact, a business can begin to offer solutions to negate or minimize these risks, thus helping to protect it from financial or operational harm.
Comprehensive Business Insurance Plans
One key way in which businesses protect themselves from the financial implications of adverse incidents occurring is by taking out comprehensive business insurance plans. These plans can cover an immense range of risks such as building insurance, covering flooding and fire damage, as an example.
One more recent risk that businesses face is the loss of data or sensitive information because of cybercrime attacks leading to data breaches.
Cybercriminals can infiltrate organizations by a variety of methods. Malware attacks can put rogue software programs onto a business network which can then steal or corrupt data, and viruses can infect office PCs, often because of inadvertently clicking on a malicious link contained within an email.
Sophisticated cyber attacks can result in denials of service where the IT infrastructure can become disabled, and ransomware software can breach IT systems and lead to the cybercriminal holding a company to ransom in return for giving back sensitive business data.
A business can protect itself from a range of data breaches by taking out comprehensive data breach insurance.
Whilst many risks will be well known to a business and recorded in risk registers, it is an unpleasant fact that some risks will go unnoticed until they becomeactual issues. This can leave an organization vulnerable to such possibilities without having any backup plans or remedial actions to draw upon.
One way to minimize these risks is for senior employees to come together in a meeting and “brainstorm” a range of scenarios that have the potential to affect a business’s operations or finances that are not already known.
This creative thinking can pay dividends to a firm as it then allows them to assess the likelihood of these situations occurring and discuss actions that could be taken to minimize their effects.
Once these scenarios have been fully explored and recognized as potential threats, they can be added to the risk register along with any agreed actions to take should they transpire. In many businesses, running ”what if” scenarios can be a key way in minimizing risk to a business.
Ensure Legal Compliance
All businesses have a requirement to operate within the boundaries of the laws that apply in their sector. For instance, some manufacturing firms will need to comply with environmental laws when disposing of waste products.
In the transport industry, there is legislation regarding the maximum number of hours that drivers can work during a set period for the good of public safety. For truck drivers, this tends to be an 11-hour driving limit within a 14-hour window after a rest period of at least 10 hours.
Companies must ensure that they are fully compliant with all forms of legislation which are relevant to their sphere of operations. If they do not comply, they can be faced with costly fines based on the severity of the infraction.
Businesses use risk registers, take out comprehensive insurance plans, use “what if” scenario forecasting, and ensure that they are legally compliant to minimize the financial and operational risks that their organization is exposed to.