Running a business comes with many types of risk. The term business risks refer to the possibility of a commercial business making inadequate profits (or even losses) due to uncertainties - for example: changes in tastes, changing preferences of consumers, strikes, increased competition, changes in government policy, obsolescence etc. Every business organization faces various risk elements while doing business. Business risk implies uncertainty in profits or danger of loss and the events that could pose a risk due to some unforeseen events in future, which causes business to fail. Some of these potential hazards can destroy a business, while others can cause serious damage that is costly and time-consuming to repair. In addition, there may be loss of assets of the firm due to fire, flood, earthquakes, riots or war and political unrest which may cause unwanted interruptions in the business operations. Thus, business risks may take place in different forms depending upon the nature of a company and its production.
Identifying Risks
If and when a risk becomes a reality, a well-prepared business can minimize the impact on earnings, lost time and productivity, and negative impact on customers. For startups and established businesses, the ability to identify risks is a key part of strategic business planning.
Physical Risks
Building risks are the most common type of physical risk. Think fires or explosions. To manage building risk, and the risk to employees, it is important that organizations do the following:
Hazardous material risk is present where spills or accidents are possible. The risk from hazardous materials can include:
Acid
Gas
Toxic fumes
Toxic dust or filings
Poisonous liquids or waste
Fire department hazardous material units are prepared to handle these types of disasters. People who work with these materials, however, should be properly equipped and trained to handle them safely.
Location Risks
Among the location hazards facing a business are nearby fires, storm damage, floods, hurricanes or tornados, earthquakes and other natural disasters. Employees should be familiar with the streets leading in and out of the neighborhood on all sides of the place of business.
Human Risks
Alcohol and drug abuse are major risks to personnel in the workforce. Employees suffering from alcohol or drug abuse should be urged to seek treatment, counseling and rehabilitation if necessary. Some insurance policies may provide partial coverage for the cost of treatment.
Technology Risks
A power outage is perhaps the most common technology risk. Auxiliary gas-driven power generators are a reliable back-up system to provide electricity for lighting and other functions. Manufacturing plants use several large auxiliary generators to keep a factory operational until utility power is restored.
Strategic Risks
Strategy risks are not altogether undesirable. Financial institutions such as banks or credit unions take on strategy risk when lending to consumers while pharmaceutical companies are exposed to strategy risk through research and development for a new drug. Each of these strategy-related risks is inherent in an organization's business objectives. When structured efficiently, the acceptance of strategy risks can create highly profitable operations.
Making a Risk Assessment
After the risks have been identified, they must be prioritized in accordance with an assessment of their probability.
Insuring Against Risks
Insurance is a principle safeguard in managing risk, and many risks are insurable. Fire insurance is a necessity for any business that occupies a physical space, whether owned outright or rented, and should be a top priority. Product liability insurance, as an obvious example, is not necessary for a service business.
Risk Prevention
The best risk insurance is prevention. Preventing the many risks from occurring in your business is best achieved through employee training, background checks, safety checks, equipment maintenance and maintenance of the physical premises. A single, accountable staff member with managerial authority should be appointed to handle risk management responsibilities. A risk management committee may also be formed with members assigned specific tasks with a requirement to report to the risk manager.
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DISCLAIMER: I’m not a financial adviser. These videos are for educational purposes only. No official financial advice is being given. Please always check with a professional before making any investments or financial decisions. Your investments are your sole responsibility, these videos merely share my own opinions with no guarantee of gain or losses.
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