As Donald Rumsfeld, former US Secretary for Defence, once famously said, “…there are also unknown unknowns. There are things we don’t know we don’t know.” You cannot take measures to protect your business against risks you’re not aware of. But you can be prepared for the ones that you are.
Risk management consists of more than just being aware of risks. Assessing the risk is the all important next step. Here are a few ways that you can assess the risks to your business.
What If?
Asking “what if?” questions may seem simple, but it can be an easy and effective way of identifying risks to your business. Some examples might include:
- What if the warehouse flooded?
- What if we lost the primary data server?
- What if a key manager resigned?
However, coming up with hypothetical risk scenarios in this way can rapidly provide a long list. Trying to cover every possible contingency would pose an excessive drain of resources for little benefit, so it’s important to focus on the most likely and the most dangerous.
Research
Research is another straightforward method that can quickly and accurately identify the most common risks to your business. There will be certain risks that are unique or specific to the industry the business operates in. By researching what some of those potential threats may be, you can assess whether the risk management plan you have has already managed those risks adequately, or whether you need to take further precautions.
Use a Risk Matrix
Businesses may find it relatively simple to identify risks, but harder to assess and prioritise those risks. A classic risk management tool that can aid this process is the ‘Risk Matrix’. With a Risk Matrix, risks are rated by their likelihood and impact, with the two numbers being multiplied to provide a risk rating.
Rating and ranking risks gives businesses a simple and distilled view of the threats that really matter, allowing them to manage those risks without wasting resources on peripheral dangers.
Review Your Business Insurance
Although transferring risk is a later step in the process of creating a risk management plan, it can pay to review your existing insurance. Having insufficient or ill-suited insurance can be a warning sign that the business is not fully protected. It may also show weaknesses or gaps in any current risk transfer or mitigation measures.
Speaking to a broker that specialises in business insurance may provide necessary advice and insight once your insurance review has been conducted.
Think About the Future, Not Just the Present
It’s important not to simply focus on the present when devising your risk management plan. A business is always operating with one eye on the future, where both planned and unplanned activities can arise or opportunities can present themselves at any given time.
When performing risk identification activities, always allocate time and effort to analyse future activities. Consider these activities not just from financial, commercial or social benefit perspectives, but also in terms of potential risks they may introduce or accentuate.
An effective risk management plan may prove to be a critical factor in long-term business operation and success. Identifying and assessing risks are only the initial steps to creating such a plan, but if accurate, they lay the groundwork for a powerful business.
Discuss your business insurance with a PSC Insurance broker today to see where insurance can play a part in your risk management plan.
Conditions apply for each policy and the information expected from you for a policy to trigger. Coverage may differ based on specific clauses in individual policies. Please ask your broker to explain the additional benefits and exclusions pertaining to your policy.
The information provided is general advice only and does not take account of your personal circumstances or needs. Please refer to our financial services guide which contains details of our services and how we are remunerated.
