Risk Management Every business faces ris

Risk Management
Every business faces risks, arguably more so in these challenging economic times, but this in itself is not a problem. The problem arises when a business is unaware of those risks or unready for their consequences.
Risk management is a process that enables you to identify risks, prioritise them, and put appropriate measures in place.
This is particularly important when trading conditions change or the economic climate becomes uncertain. It is also important when engaging in a new venture such as launching a new product, investing in capital projects, upgrading a system, starting a joint venture or entering into a merger or acquisition.
The extent to which a business has a risk management process in place is becoming an increasing concern for insurers, lenders, investors, and other stakeholders – including customers and suppliers.
Benefits
Introducing a formal risk management process will improve your overall credibility, increase the likelihood of your meeting your goals, and help protect the reputation of your business.
It will also make your business more efficient by helping you:
Focus more of your energies on core activities by cutting out needless fire fighting
Allocate resources more efficiently
Improve decision-making and prioritising
Produce more accurate plans, forecasts, and budgets
A further, potentially significant, benefit is that it can help you negotiate lower insurance premiums.
The risk management process
The risk management process consists of four main steps:
Identifying potential risks in your business activities
Ranking them according to their likelihood and potential impact
Determining appropriate risk management measures
Implementing risk management procedures and monitoring their effectiveness
Identifying risks
As evidenced by the number of business failures in recent months, financial risks are a major threat to businesses of all size. In assessing financial risks you need to look at the your financial dealings with lenders, customers and suppliers, and especially at your cashflow situation. Include in this assessment any external factors that might have a bearing such as interest rates and exchange rates. You will also need to look at your financial structure and the financial systems you have in place.
Besides financial risks, businesses face many risks associated with their day-to-day operations, and areas that need to be examined here include among others:
1. IT systems
2. Financial controls
3. Employees
4. Supply chain reliability
More broadly, there are also strategic risks associated with the industry you operate in, which would include changes in market conditions, competitor activity, changes in consumer behaviour, industry changes, and mergers and acquisitions.
There are also risks arising from compliance issues, such as the possibility of new legislation being introduced, and of course risks associated with external factors such as the environment, industrial relations, political change etc.

The more methodical you are in identifying these various types of risk, the more effective your risk management process is likely to be.
Obviously some of these areas are potentially vast. Conducting a risk assessment of IT systems, for example, would merit a document all to itself. The point of this brief guide is just to map out the process of risk management. When it comes to the actual task, we would be more than happy to help and advise.
Ranking and prioritising risks
Risks can be ranked according to the likelihood of their occurring and their potential impact on the business. This can be done using a risk map, a matrix with likelihood charted on one axis and impact on the other. This will enable you to prioritise the risks, with those clustered in the high-impact/high-likelihood corner being the most in need of attention. Again we would be happy to help with this process.
Determining appropriate risk management measures
Having identified and ranked the risks facing your…

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