Managing risk vital for business survival and success
Managing risk is a key component to the ongoing survival and success of any business, no matter how large or small. To manage risks effectively, your business needs to develop and implement a comprehensive risk management plan that identifies and prioritises all potential risks that could impact your business, and puts processes in place to treat, control and minimise those risks.
Business risks can generally be broken down into 5 categories. These include:
- Strategic risks associated with operating in a particular industry.
- Compliance risks associated with compliance with appropriate laws and regulations.
- Financial risks associated with the financial structure of your business, including business transactions and financial systems.
- Operational risks associated with the operational and administrative procedures of your business.
- Market/environmental risks which your business has little or no control over such as major storms or other natural disasters, changing economic conditions, supply chain issues etc.
These risk categories should all be addressed when developing your comprehensive risk management plan.
Five steps to creating your risk management plan
To create a risk management plan tailored for your business, follow these steps:
1. Identify and prioritise risks
What are your risks and how likely are they to occur? Some risks could cause major disruption while others may only be minor. Prioritise each risk by assessing both its likelihood and potential severity.
2. Minimise or eliminate risks
After identifying and prioritising risks, either eliminate or minimise those risks where able. Develop specific strategies for minimising the risks for each category.
3. Identify who has to do what in a disaster
Identify responsibilities for individual personnel in your business should you need to enact your disaster plan or manage a particular risk event.
4. Determine and plan recovery contingencies
Recovery contingencies should be determined by the type, style and size of your business and by the extent of the damage. For example, you may need to arrange a temporary business relocation, change suppliers or hire replacement plant and equipment.
5. Communicate your plan
All staff, suppliers, contractors, service providers etc. should be aware of the strategies you’ve put in place to either mitigate or recover from a disaster or other risk event.
In preparing for a disaster or other risk event, decide whether you will communicate to all those affected via phone, email, text or by other means. Create and document procedures and inform relevant people. Next, train staff and ensure everyone understands and prepares for what is expected of them in any particular situation.
An Emergency Management Plan Template and Emergency Guide are available for download at the Australian Small Business Commissioner website at www.asbc.gov.au/resources/templates
Risks common to small businesses
The NSW Government’s SmallBizConnect website lists some of the more common risks that can affect small businesses. These include:
- Breakdown of machinery and equipment
- High staff turnover or loss of a key staff member especially if they have unique skills
- Security of data and intellectual property
- Increased competition
- Failure to comply with legislation, regulation and/or standards
- Bad debts
- Negative cash flow
- Natural disasters such as fires and storms
- Issues relating to internet connectivity
- Internet fraud and scams
- Insurance coverage
- Consequences arising from lack of innovation.
Role of insurance in managing risks
Insurance plays a vital role in managing many of the risks that can impact any business. With a comprehensive business insurance plan in place, you can reduce, or even eliminate, the financial impact on your business in the event you suffer a disaster or other risk event.
Many of the risks highlighted in the NSW Government’s SmallBizConnect list of common small business risks can be covered by appropriate business insurance. For example:
- The financial impact of data breaches and internet fraud and scams can be covered by cyber-insurance as detailed in Cybercrime on the rise: How to protect your business.
- Property insurance can help protect your buildings, plant and equipment.
- Business interruption insurance can provide a financial safeguard against the unexpected loss of profits following a natural disaster by meeting your regular business expenses, including staff salaries and any redundancy payments.
- Public liability, professional indemnity and directors and officers liability insurance can protect your business should you be subject to any compensation claim by a third party as a result of negligence, professional negligence, or wrongful acts by any directors or officers.
- Workers’ compensation insurance is compulsory insurance to maintain appropriate accident and sickness insurance for all employees and certain contractors you engage in your business.
Contact Westlawn Insurance Brokers today
To learn more about incorporating comprehensive business insurance as part of your risk management plan, contact Westlawn Insurance Brokers today.
- Call us on 1300 WESTLAWN (1300 937 852)
- Email us at firstname.lastname@example.org
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