New business owners are faced with constant challenges and decision making processes on a day-to-day basis. Entrepreneurs faced with these decisions need to carefully analyse and manage the associated risks involved with the decision.
Risk-taking is necessary to reap rewards, however, entrepreneurs need to make informed choices to avoid potential damage to the business. To manage risk effectively, entrepreneurs need to be proactive in identifying and responding to risks before a crisis strikes.
Both tangible and intangible items can pose risks for your business. Entrepreneurs may find it easy to list the physical items at risk such as assets and infrastructure, yet may neglect intangibles such as injury to staff, loss of important business information, fraud, product recalls, supply chain disruptions and so forth.
Calculate your risks
Once the risks have been identified they should be ranked on the likelihood of occurrence and the severity of consequence it might impose on the business. This risk criteria helps to form a risk rating which can rank the risk from low to extreme. The risk rating helps you to determine what risks need more time, attention and resources.
Manage your risks
Finally, the risks need to be managed effectively. There are four ways of managing risk including avoiding the risk, transferring the risk, reducing the risk and accepting the risk. Avoiding the risk is not always the best or viable solution. Transferring risk is a common way of avoiding damage as the risk is no longer your problem, for example insurance and product warranties.