A ‘risk’ is defined as anything that could negatively impact on your business. It’s impossible to eliminate all risks in a business, so you need to decide what level of risk you are willing to tolerate.
Business risks tend to fall into several categories. These include strategic, operational, compliance, financial, environmental and reputational. Creating a sound risk management plan enables you to work out where the risks lie, and how you can minimise them.
Risk management involves four basic steps:
- Identify hazards – not only physical hazards but also less tangible ones, such as internet downtime or loss of data ect.
- Assessment phase – once you’ve identified hazards, you need to evaluate how much risk they pose by assessing how likely they are and what their impact would be.
- Manage and control risks – the next step is to control the risk, or to accept it and do nothing. Risk control options include:a. Avoidance – e.g. look for another, lower-risk way of achieving the same outcome.
b. Reduction – if the risk can’t be avoided, look at ways of reducing it. For example, through improving security, doing some repairs and maintenance, or providing protective equipment.
c. Transfer – pass the risk (either whole or in part) to someone else. This might be through insurance or through outsourcing of work.
- Monitor and review stage – it’s important to keep track of all incidents so you can monitor and review your risk management plan to see how well it’s working and make changes if necessary.