The Need for Risk Analysis
“What if…?” This is a healthy question to ask and business risks need to be faced, not ignored. You may never experience any of the risks you imagine, or you may come across situations you never imagined, but planning for internal and external risks helps build safety into your business plan. In this lesson you will:
Risks in Business
We all hope and dream of a well functioning business – it’s the motivation that got us started. But in the back of our minds we are worried about it. What happens if the inventory gets damaged? What if a fire occurs and the office and all paperwork goes up in smoke? What if the computer crashes and all stored data on it is lost? What will happen if someone hurts themselves conducting business for you? What if the product makes customers ill? These are natural concerns and considerations.
Below are examples of risks associated with businesses:
What are some risks that you anticipate could happen in operating your business? Are there some not on this list? Add as many business risks that you can think of to your NOTES for consideration.
Smart business people consider these risks and ways to manage or mitigate beforehand. In short, they have a plan in place that prevents or reduces risks, such as altering how operations are conducted as well as getting insurance.
When thinking about how to mitigate risk, think about:
1) Is there an operational approach, and if so, what is it?
2) Is there an insurance that can protect me, and if so, what is it called?
Mitigation measures are actions that you will take to provide business continuity for your customers, employees and you.
Review these examples to see how business risk can be reduced:
– How has Sarah planned for her business risks?
If you recall, Sarah has a dog care business that includes both dog walking and boarding. As well, she needs to consider two types of customers on her premises: dogs and pet owners.
Sarah has developed a risk plan for her dog boarding and walking business. Many of the risks she has imagined revolve around safety issues, whether from internal or external sources. Her plan includes both the operational and legal measures that she will take to mitigate potential safety concerns.
Below are some of the INTERNAL risks and mitigation measures Sarah has implemented:
EXTERNAL safety risks in Sarah’s business are higher with the combination of a facility and use of public spaces. In addition, she needs to plan for the care of multiple dogs and staff in potentially risky situations that are out of her control.
Below are some of the mitigating measures Sarah has decided to implement:
Business Plan Activity
This activity will form part of your Business Plan (from BP Guide) where you will identify potential INTERNAL RISKS (originates within your business) or EXTERNAL RISKS (originates outside of your business). You will brainstorm five potential scenarios, include operational and legal mitigating measures for each one AND add action steps to implement these mitigation strategies. Review the Business Insurance Information PDF to choose the best insurance for your business.
Tip: Use brainstorming to generate as many risk considerations and strategies that you can and add to your NOTES so you can view or download at any time. By refining five in your worksheets you will learn the process for identifying and mitigating risk but you may come up with many more that you'll want to address later!