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Risk and Your Business

There you go, we said it. Risk!

It is an ever-present in business of all sizes. Yet, in too many cases, save for perhaps safety, it remains unspoken, almost taboo. It’s as though people think if they ignore it, it will go away. Well, it doesn’t!

So, what is risk? According to the Cambridge Dictionary risk is “the possibility of something bad happening”.

The good news is, that possibility can be reduced, removed or offset if you plan. Yes, you need to allocate resources to risk planning and yes, there are so many more fun things you could be doing with your time.

Yet, if it’s worth building, then surely, it’s worth protecting. Think of risk as being like kryptonite to the value of your business. The riskier it is, the less it is worth and vice versa.

Types of business risks.

Here, we identify some common types of risk. This list can never be exhaustive and is generic in nature. Maybe you can identify five, ten or fifteen more risks in your business. Either way, we trust this list will help you to begin identifying the risks that are present in your business.

  • Execution Risk: The risk that management does not execute approved plans as required.
  • Safety Risk: The risk of accidents or injuries to workers, potentially leading to harm, delays or legal issues.
  • Environment Risk: The potential for activities to negatively impact the environment, including spills, noise, emissions, or habitat disruption.
  • Product Risk: The risk that products or services may not meet required standards, customer expectations, or contractual obligations.
  • Competitive Risk: The risk that existing competitors, new market entrants or substitute products/services make it difficult to maintain and/or grow sales.
  • Margin Risk: The risk that your business is unable to achieve gross margin at satisfactory/budgeted levels.
  • Contract Risk: The risks that inherent to the terms of any contract, including the inability to negotiate suitable contract terms, manage disputes over contract terms, and/or enforce terms.
  • Operational Risk: The risk of disruption to the business’ operations due to inclement weather, process failures, human error, equipment failure/malfunction, or poor maintenance practices leading to delays, increased costs, unsafe conditions or environmental risk.
  • Concentration Risk: The risk that you have reliance on given inputs, suppliers or customers, that means you are exposed to their availability, the decisions they take and to their financial stability among other things.
  • Market Risk: The risk of changes in the market adversely affecting demand, such as economic downturns or regulatory change.
  • Data Security Risk: The risk of unauthorised access to company data, breaches of confidentiality, or cyber-attacks.
  • Reputational Risk: The risk of damage to the business’ reputation due to real or imagined circumstances, such as poor service delivery, unethical practices, failure to meet investors’ expectations, mistreating the workforce, environmental damage, or negative publicity potentially affecting key relationships, future business levels or industry standing.
  • Financial Management Risk: The risk associated with poor management of the business’ financial performance, including forecasting, planning, foreign currency exposure, cash flow, under-charging, uncollected income, working capital management and cost management.
  • Credit Risk: The risk that a customer is unable or unwilling to pay, perhaps due to their own financial difficulty.
  • People Risk: The risk of losing key staff members that may have special skills or knowledge or failing to attract and retain such skilled staff members.
  • Legal Risk: The risk of legal action arising from disputes, errors in financial reporting, contractual issues or poor regulatory compliance.
  • Supply Chain Risk: The risk of disruptions, delays, or failures within the supply chain which may negatively impact your production of goods or services, ultimately affecting business operations and profitability.

Business Risks identified. What now?

Having engaged with your team, advisers and industry bodies and having identified the types of risk and the specific risks that exist in your business, what should you do next?

  1. Adopt a framework for ranking risk. Frameworks adapted from ISO 31000-2018 will serve you will. The framework will help you to determine those risks that need your urgent attention and which risks, as lower order risks, can be dealt with in time. It will ensure consistency of approach, serve as a source of truth for your Board and assist it to exercise and demonstrate the exercise of good governance.
  1. Rank your risks. Ranking risks is somewhat subjective. Most systems assign a rank based on likelihood and consequence. The likelihood of a particular risk presenting may range from ‘rare’ to ‘certain’ whilst the consequence to the business of a particular risk presenting may range from ‘insignificant’ to ‘catastrophic’. A risk event that is considered ‘certain’ to occur and is predicted to have a ‘catastrophic’ effect when it does occur might be considered an ‘extreme’ risk, whilst an event that is considered ‘rare’ and the consequence of which is ‘insignificant’ is probably not a priority compared to others.
  1. Identify your countermeasures. Now you know what your risks are. You know which ones demand your immediate, near-term, mid-term and long-term attention. You will be happy to know that many risks are quite easily and quickly dealt with. Small changes can have a big impact. Many risks are insurable. Others may require a more complex response and take time to address, for example, sourcing alternative inputs, suppliers and customers.
  1. Elevate the importance of risk. Risk is ever present and ever changing. This is not a one-time exercise. “What gets measured, gets done.” So said management guru Peter Drucker and who can argue?

Business risks at a glance.

You must talk about risk. Say the word. Risk. Have others say the word. Risk. You must have a process for identifying risk and allocate responsibility for it. Add it to the standing agenda for your Board meetings. Measure, monitor and report. And remember, when you’re talking about risk, you’re talking about value!

At BridgePoint Group, we understand that risk is an ever-present factor in businesses of all sizes. Our team of experts is dedicated to helping you identify, assess, and mitigate risks that could impact your business. We provide comprehensive solutions tailored to your specific needs. Let us help you protect and enhance the value of your business with our proven strategies and expert guidance. Contact BridgePoint Group today and take the first step towards a more secure and prosperous future.

Talk To
Neil Parker
MANAGING DIRECTOR
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