Risk management planning for small businesses: What you need to know

06 December 2018

Almost by definition, small businesses have less cash at their disposal, which means they can be severely impacted by market and condition changes. As a result, forward planning can really help to protect businesses. However, proper risk management is one of the most neglected aspects of many small businesses, with companies often forgetting that a proper risk management plan is essential when it comes to survival and success .

If not properly addressed, then business risk can have serious repercussions, resulting in setbacks and damage which could prove to be irreparable later down the line. A risk management strategy done right minimises exposure to possible risks that a business may face in some form or another.

Here, we’ll go into how small businesses can get their risk management planning sorted, touching on effective SWOT analysis and practical information to help reduce operational risk.  

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What do we mean by risk?

When risk is mentioned in conjunction with a business, it relates to any event or circumstance that has a negative effect on your business. Types of risk vary from business to business, but they all post potential operational threats.

You must decide on how much risk you’re prepared to take in your business – some types of risk can play a large part in its success, while the wrong types can be harmful.

Common business risk categories include:

  • Strategic – decisions that concern your business’ objectives
  • Compliance – the need to comply with laws, regulations, standards and codes of practice
  • Financial – financial transactions, systems and structure of your business
  • Operational – procedures concerning operations and administration
  • Environmental – external events that businesses can’t control, such as poor weather or economic conditions
  • Reputational – the standing of the business to others

Identifying risks with a SWOT

There are plenty of tools out there to identify project risks, but SWOT analysis comes highly recommended as it can help you and your team identify and prioritise strengths, weaknesses, opportunities and threats. Sometimes referred to as the inside-out analysis, the analysis of strengths and weaknesses deals with what’s within your organisation, while opportunities and threats relate to external elements.

It’s often used to present project information to management. If there’s a need for management to alter certain things about the business, SWOT analysis can directly influence this. 

SWOT Terms: What do they mean?

  • Strengths:

A skill, valuable resource, competitive capability, or an attribute that provides a market advantage.

  • Weaknesses:

Something the business lacks or does poorly, or a condition that puts the business at a disadvantage.

  • Opportunities:

A combination of favourable circumstances that the business should take advantage of.

  • Threats:

Anything that may stand in the way of your business’ ability to achieve objectives.

  • Applying the technique
  • Brainstorm and capture strengths
  • Analyse and combine appropriate strengths
  • Prioritise strengths in a forced rank order
  • Repeat steps 1-3 for weaknesses, opportunities and threats.

The responses are then presented in a four-square grid, designed to allow for analysis and cross-reference. A business can then define strategies that use strengths to take advantage of opportunities, strategies that use strengths to avoid threats, strategies that take advantage of opportunities by overcoming weaknesses, and strategies that minimise weaknesses and avoid threats.

Reducing operational risk

Operational risks can have a significant effect on the reputational and financial stability of a business. So, it’s important that small businesses have strategies and approaches that can deal with any fallout should they be subject to the many operational risks. The discovery, control and easing of such risks is often carried out by using the following seven-step approach:

Step one – task segregation

Splitting tasks and duties across different people helps to reduce internal theft and risks related to fraud. When money is involved, separating the tasks stops one individual from taking advantage of the numerous aspects of transactions and business processes or practices.

Step two – remove or minimise complexities in business processes

Keeping the more complex aspects of your work to a minimum can help to reduce operational risks. Minimise the number of manual activities to ensure speedier, more streamlined processes without the need for more people.

Step three – reinforcing organisational ethics

Giving employees a code of ethics to work by is highly effective in operational risk management. An ethical compass within the business helps to reinforce personal values and principles of the workforce, alongside the ideology or the organisation.

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Step four – having the right people in place

If you’ve hired the right people, then there’s less to worry about when it comes to meeting  deadlines, avoiding errors and low-quality work.

Step five – monitoring and evaluating at regular intervals

The processes of a business are more effective with well-designed performance indicators in place. Key Performance Indicators (KPIs) allow for quantitative detection and effective management of risks, provided they are continuously monitored and reviewed. Shortcomings can then be identified and managed accordingly.

Step six – periodic risk assessment

Each aspect of operational risk requires assessment in order to ease organisational management. Stay ahead of risks by measuring regulatory obligations, IT assets, skills, competencies, process and business decisions.

Step seven – Look back and learn

A measure of this approach is being able to implement the seven steps into a successful risk management programme. Corporate governance, and a risk and compliance platform enabled by technology can support the implementation of the 7-step approach to operational risk management.

This is central to all risk management activities – a continually-evolving approach which manages the ever-changing risk landscape.

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The views, opinions and positions expressed within this article are those of our third-party content providers alone and do not represent those of Gazprom Energy. The accuracy, completeness and validity of any statements made within this article are not guaranteed. Gazprom Energy accepts no liability for any errors, omissions or representations.

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