How to Identify Potential Risks
Financial Risk Analysis looks at a company’s problems it could potentially encounter in daily operations. When changes in financial markets, legal liabilities or even manmade disasters occur, business operations can be disrupted.
Once you identify potential risks, you can then prioritize them and take action steps to handle them, which include avoiding the risk, reducing negative effects, accepting the consequences of the risk, or transferring the risk elsewhere.
As a growing company, proactively managing business risks will help you sustain growth. But, before you start identifying risks, assess your business. Ask yourself what could affect key services you offer or what could affect your staff.
There are four main categories of risk you should consider to help you identify potential risks within your business:
- Compliance – These are risks related to the need to comply with rules and regulations. For example, you may need to think about whether health and safety regulations could increase your overhead costs.
- Strategic – These are risks associated with operating in a particular industry like companies merging, industry changes, or research development. You want to think about the strategic risk of the possibility of a company in China acquiring one of your competitors in the U.S. You want to be prepared with a response by considering different scenarios.
- Financial – These risks include your business transactions and your financial systems in place. To identify financial risk, examine your daily financial operations, particularly cash flow.
- Operational – These risks are linked to your company’s administrative and operational procedures ranging from your IT systems, to regulations to recruitment.
For instance, if you’re a growing business, consider the most common risk factor, underdeveloped operational infrastructure. Many companies are so focused on their ability to produce today that don’t put enough into building operational infrastructure to sustain growth over the course of time.
Operational infrastructure includes decision-making, goals and measures, training and development, and much more – all factors that help generate revenue, care for your customers and allow your company to remain competitive.
Inc. identified five risks for a growing business and how to manage them. They ranked the ‘Inability to Capture Key Data’ at number four on their list: Writer Lee Colan says, “This risk factor results in inefficient data collection, slow decision-making, and poor performance management (all the way from corporate results to individual production).”
Colon recommends keeping measurement simple by identifying your company’s key success factors and focusing on corresponding measures. Then, integrate your systems, after you’ve streamlined your manual processes, to capture the key data you need.
Establish an Action Plan
Once you’ve identified risks within your business, break down potential risk sources and determine why they may occur in order to establish the likelihood of each risk occurring. Next, determine the cost or impact the issue would have on the company.
Implement a plan defining the scope of the problem, when the plan should begin, action steps and the delegation of tasks.
We recommend that you also create a register document, which is a permanent record detailing your concerns. You can use it as a checklist to review risks annually. The document will allow you to ensure your company’s plan doesn’t make the issue worse.