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Vol. 4 issue #329 March 2, 2011                    


What To Do With Risk  

By Carol Glover

Risk Management must be one of the most intimidating aspects to operating a business. What if you miss seeing one? What if you choose the wrong course of action? What if you ignore one that was brought to your attention when you were preoccupied? One false move can be hazardous to your company. It's no wonder many people would rather ignore risk management than face it.

There are three main types of risk:

  1. External - not directly related to your business but can affect it. These risks will most likely be related to economic factors, industry culture or politics.

  2. Internal - has a direct effect on your business. Internal risks are under your control and include factors such as finances and staffing.

  3. Technical - impact the tools you use e.g. software, manufactured parts etc.

I'm sure there are more types of risk but the main point is to recognize the source of the risk so you can determine the amount of control you have over it. Not all risks are negative; if leveraged properly a risk can become a huge opportunity for you and your business.


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Here are some suggestions for facing and managing your risks.

1. Define a process for identifying and managing risks.

At first you will want to consider: how you will quantify the impact of the risk and the probability of it happening, prioritization of the risks as you move forward and you'll also want a process that will control how risks are identified and qualified to enter your risk management process. Not all troubles are risks; the qualification process ensures only valid business risks move into the mitigation process. As you start out formally managing your risks, you may want to keep your tracking simple by using a spreadsheet.

2. Brainstorm to identify current risks.

You can do this on your own but I suggest you call upon your team or a trusted advisor to help you. A partner or group may see risks you haven't noticed and can help you gain perspective on the probability and impact of each risk. The key to brainstorming is to identify as much as you can but not to go into deep examination right away. First you take a pass at identifying the risks and then you go through a qualification round. During the qualification round you will separate the routine issues from real risks. Risks are issues that can affect your business as a whole. Routine issues usually affect a smaller piece of the operation. However, if you discover you have a large number of routine issues, this can become a significant risk and should be identified as such.



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3. Analyze each risk.

For each risk identified, assign probability and impact values from high to medium or low. For example: not having the budget to hire key staff to support your growth plan will rank "high" for probability because you already know you don't have the budget and it will rank "high" for high impact, because you're business can't grow without more people. Similarly, a slower than expected economic recovery in your area may be identified as a medium probability and a low impact because you are maintaining your current business comfortably in a slow economy.

Once you have completed qualifying the risks you will want to rank them to be sure you're addressing the most critical risks first. Start with the high probability/high impact risks and continue sorting the group down to low probability/low risk. If you have a risk with low probability/high impact, I would place that above high probability/low impact for the sake of managing by priority.

4. Create a response plan for all risks.

Now that you've identified your risks and qualified them, it's time to create a response plan to manage them. Basically you want to find ways to reduce or eliminate the risk and there are many ways to do this. You can: examine your options for reducing the probability of a risk occurring, reduce the impact if the risk occurs, transfer the risk to someone else (e.g. purchase insurance), you can accept the risk or you can leverage it into an opportunity.

As you plan how you will respond to each risk, take time to also consider the triggers you will use to activate your plan and set dates if possible. For example, if you know a risk is likely to occur, think of how and when you will know it's happening. A shipment of critical material that several customers use will likely have a date by which its too late to be of any use to you. The trigger would be a notification from your supplier or a set date. This trigger will put your response plan into action.

A critical piece of your risk response plan is to assign an owner for each risk. Find the person who will be the first to recognize if the risk event is triggered or the person who has the authority to respond quickly to the event. This person will be responsible for monitoring the situation and advising the team of the response strategy and any changes in status.



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5. Monitor your risks.

Follow the communication and review process you defined above. Take time to assess the probability and impact for all identified risks regularly as some may increase or decrease in importance as time goes by. You will also want to monitor for risk triggers approaching, new relevant factors and status updates. As new risks are identified, follow the steps above to bring them into the process.

Your tracking process does not need to be complicated, just be sure to keep your risks visible and up to date.

6. Review your risk management process regularly.

Once you've defined your risk management process and begin to work with it, you may notice efficiencies that can be made or gaps in the process. Periodically review your process and don't be afraid to enhance it along the way. Lessons learned can be valuable business tools and risk management is a perfect place to leverage them.

In short, don't hide from risks, face them and work with them. Preparing for a challenge is much easier than scrambling to resolve one you saw coming but chose to ignore. Responding confidently and methodically to risks and opportunities can define you, your team and your business as true leaders.



I am PMP certified and have solid experience in large scale software implementations and facility development projects. Recently, I have started working with small businesses to help them develop business plans and operational processes. I have created a series of downloadable business efficiency guides. Most guides include exercises and templates to add extra value to the lecture. In addition, I have been blogging for over one year and have recently been asked to contribute monthly articles to my local Small Business Community Network website.
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