Effective Risk Management for Small Business

Risk is defined by the UK’s Audit Commission as “any threat or event that adversely affects an organisation’s ability to achieve its objectives or successfully implement its strategies”.

As a small business owner you might think your risks are easily understood and so simple or unlikely that you don’t need to write them down, far less draw up an actual plan to manage them. That could be a big mistake.

Consider this: you have an idea how you’d cope and it sounds good in your head, but in your heart you know you haven’t fully thought it through. Suddenly a crisis hits out of left field and there you are responding on the fly. It can add up to major unnecessary stress, lost business and maybe even an expensive claim on your business insurance and increased premiums afterwards. Do yourself a favour and draw up some decent business continuity plans. Your business (and your blood pressure) will thank you for it.

Four simple steps to effective risk management

1. Identify risks – with a focus on business objectives

2. Assess risks according to potential impact and likelihood

3. Decide on actions, prioritising those risks with highest impact that are most likely to occur

4. Draw up business continuity plans and review annually

Although many risks could disrupt your business, the good news is that you don’t need an individual plan for each one and every possible permutation. If you tried to do that, the task would soon become overwhelming. It’s generally more practical to build a set of flexible, holistic business continuity plans.

A good business continuity plan is based on a “business impact assessment” or BIA and you’ll find a number of templates on the web. A BIA helps you think through potential disruption in a number of scenarios and decide how to keep your business up and running. If and when a crisis occurs reaction time is sped up because the thinking is done and you know what to do and who to call.

How to plan

Here’s an example. Rather than trying to think of every possible reason why your premises might one day be inaccessible, simply plan for what happens if you can’t get into the office/factory. Plan for several time periods, from 24 hours, to 3 days, a week and a month. Do you see how this is more flexible?

Spend a bit of time thinking through the implications in detail. If you have staff, get them involved in generating solutions because someone is bound to have a helpful suggestion. Then practice the plan. It’s worth doing this because it typically reveals a glitch that you can then iron out.

Scenario planning

This style of BIA and subsequent plan can be adapted for widely diverse risks that could impact your business. Here are some scenarios you might want to plan for and some of the questions you could ask:

  • Holiday periods. Do you close down for certain holidays? What extra risks does this expose your business to? Key factors could include the value of goods and equipment left unattended plus replacement costs. Location might also be a factor depending on whether you’re in a high-traffic zone or a quiet business park.
  • You are incommunicado. Never mind why – who’s going to run your business and where are you going to store the plans and guidance they’ll need?
  • Power and IT problems. Do you have an off-site back-up or alternative workplace organised? Who are the key personnel?
  • What happens if half your staff are suddenly unavailable? Again, for the purposes of planning it doesn’t matter why. How could you keep going with less people? What gets prioritised and what could wait? Are temporary staff an option? Would they need training?
  • Supply chain failure. Increasingly complex supply chains increase the potential for problems, resulting in unhappy customers. How are you going to work around supply chain failure if it happens?

To make sure you’ve covered all the bases, think about investing in some expert advice. This doesn’t have to mean hiring a consultant; your fire department, local police and even your accountant may all have some useful insights to contribute.

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