Why risk management is essential for small business
Unless you’re a safety or risk professional or work in a tightly monitored sector like construction, mining or healthcare, the term ‘risk assessment’ will probably feel a little foreign. What does a risk assessment involve? What parts apply to my company? Is it even necessary for the type of work I do?
It is this confusion that leads many businesses to do nothing and end up highly exposed – particularly small businesses. They may have a health and safety policy in place, but fail to properly assess risk in other areas. Or maybe they undertake a one-off assessment and leave it to decay on the shelf.
Why do I need to assess risk?
The reality is incorrectly identifying or failing to mitigate risk can destroy a small business. According to the Australian Bureau of Statistics, more than 60 percent of small businesses cease operating within the first three years of starting. Last year risk management agency Dun and Bradstreet measured an 11 percent increase in business failures in the third quarter of 2016. Risk assessments are therefore vital to holistically track the health of your company.
Know what to look for
Risks to companies involve the financial – how vulnerable you are in relation to customers, competitors and costs, and the physical – the wellbeing and safety of your staff and assets.
CPA Australia offers a guide on the key risks small businesses should consider when undertaking a risk assessment.
Examples of financial/company risks to consider:
- Correct insurances
- Commodity price and interest rate exposure
- Remaining ahead of market and product development trends
- Wage increases
- Cashflow forecasting
- Customer credit status
- Premises suitability and future space forecasting, and
- Up-to-date technology
Examples of health and safety risks to consider:
- Environmental hazards
- Physical and electrical hazards
- Psychosocial – mental wellbeing and work stress factors
- Work processes and conditions – adequate training, skills and competencies
- Equipment maintenance, certification, inspection and fit for purpose
- Biological – hazardous material and substances in the workplace, and
- Contractor management and sub contractors
Making dynamic risk assessments part of what you do
To be useful, risk assessments cannot simply be conducted and then filed away. The whole point of risk assessments is that they identify uncertainty as realistically and rationally as possible. But circumstances change. Things evolve. In the same way that your business must be dynamic to respond to fluctuations in the economy, changes to your market and developments in your industry, your risk assessments must also be dynamic. In fact, one of the principles stated in the ISO 31000:2009 global risk management standard is that effective risk management should be “dynamic, iterative, and responsive to change”.
Think one step ahead
Without a solid business plan, you won’t be able to dynamically assess risk. It’s crucial to know the forward leaning goals and objectives of the business to apply any projected risks against your upcoming plans.
Consider the following:
- Will the business be expanding into new markets?
- Are there new products/services on the horizon?
- What product/service is generating the most revenue for the business?
- How high is employee turnover and are there any concerns regarding staff wellbeing?
- How long is the average sales cycle?
- What is the sales strategy for next 12 months?
- How does the business measure success?
Once you have a firm understanding of these considerations, apply the risk assessment to each factor and extrapolate outcomes.
Involve the whole business
Where many companies stumble is in their failure to involve the whole business in their risk assessments. Risk management cannot be conducted in a vacuum. If needed, hire a consultant to take on this role to ensure fair and accurate results. If the risk assessor does not partner with every corner of the business and leave no stone unturned, they are guaranteed to miss something. Enlist figureheads from every department from day one to ensure maximum buy-in across the business.
Getting the most from a risk assessment
Risk assessments aren’t a box to be checked to respect compliance obligations, nor are they exclusive to big companies. Indeed, risk assessments are even more vital for smaller businesses operating on lower profit margins or in their infancy. An effective risk assessment will help inform the direction of a business, assist in the allocation of budget and resources, set priorities, ensure your staff are looked after and stimulate the right discussions that need to be had for the business to succeed.
David Moylan is the former director of Safety and Risk for the Australian Army and founder of leading provider of cloud based Environment, Health and Safety (EHS) software Vault Intelligence. Vault is currently used by over 600,000 people in 640 organisations across Australia and New Zealand including blue chip clients such as Coca-Cola Amatil and Visy Industries.
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