How to Improve Risk Management in Your Business
Risk management has become increasingly popular in the past twenty years. It is also a corner stone of good governance.
Despite this increased focus, businesses are still being blindsided by events which result in high costs being incurred.
Potential problems and unpredictability – think “out of the box”
Usually a risk assessment is done via a matrix and once all known risks have been identified, they are ranked in terms of cost to the business should they occur.
That’s a limited way of doing this process as recent events have shown just how unpredictable the world is getting, for example a volcano in Iceland shutting down most flights into Europe.
Don’t just think of risks you know about but think of some potential event that could close down your business for an indefinite period. Even if you can’t envisage something specific that could shut you down, you can prepare for such an eventuality.
Optimistic versus pessimistic
Most of us are optimistic when we look into the future and thus we tend to be optimistic when doing a risk matrix. The business would be better served if a more pessimistic or a more even-handed, realistic approach was taken.
Consider operational risks also
Most risk assessments tend to happen at a high level, such as “is our sales strategy sound with risks catered for?” But do we think of what can go wrong operationally? The BP disaster in the 2010 Gulf of Mexico highlights this issue – a maintenance failure led to an explosion which killed 11 people, led to 3 million barrels of oil leaking into the sea and caused the BP share price to fall 50%.
Why not include risk mitigation in job descriptions of middle and lower middle management in your organisation with an emphasis placed on operational risk?
Risk is a dynamic process – keep thinking of what can go wrong and of how to minimise the chance of it happening.