Think outside the square when identifying business risk

Small Business

20 Nov

Identifying, and more importantly, managing risk is a critical part of better business management.

Life doesn’t always go as we plan or expect. In North Queensland we’re no strangers to this, with 2019-20 period delivering floods, drought, bushfires and COVID-19.

Should we have foreseen any of these events?

Probably, but possibly not their concurrence or their severity. But come what may I think we will be more mindful of them as possibilities in the future. And being mindful of them means that we can develop plans that might better enable us to deal with them should they happen again.

“In looking to identify risks we need to be far reaching and really look outside the square.”

Natural disasters are one thing but they are by no means the only, or indeed necessarily the most dangerous, of risks that businesses face. Businesses face risks in pretty well every aspect of their business plans.

There are market risks, people risks, business environmental risks, legal and compliance risk, and finance risks, simply to name a few.

What risk that new competitors enter the market and steal market share?
What risk that problems develop in our supply chain that hamper our production or increase our costs?
What risk that new technologies make our products less desirable?
What risk that we lose some of our key people.

We need to recognise the risk that some of the assumptions underpinning our Business Plan might not in fact work out.

Risk management matrix

Having identified our risk exposures we need to then develop a risk management matrix which firstly assesses the likelihood of the risk actually happening and then secondly assesses the potential severity of their impact.

Risks that are highly likely and will have severe impact will require more serious risk management strategy development attention that the less likely, less impacting risks.

In looking to identify risks we need to be far reaching and really look outside the square

I have one client who lost a considerable amount of money due to a cyber attack. The email account of the chief financial officer was hacked and used to instruct the accounts payable staff that a major creditors bank account details had been changed. This resulted in a significant payment being totally lost. It was enough to actually imperil the entire business.

Development of a risk management framework and plan is simply a must do management function these days. The Small Business Financial Counselling Service North Queensland would be very pleased to help you with this for your business.