How Can I Reduce the Risk in My Business?
Monday, August 12, 2013
Risk management is essential for all businesses. It reduces insurance premiums and thereby makes insurance affordable, it creates a good environment for your employees and thereby retains the good ones, and it reduces the number of accidents and amount of damage in event of an accident.
Here are some tips for reducing the risk in your business:
- Risk management requires a systematic approach. You should first identify potential sources of risk, then measure the likelihood of their occurrence and the severity of the damage, and then implement strategies to eliminate or reduce those risks. This assessment should be conducted at least once a year.
- Identification of potential hazards: Your complete hazard list will be long, and will include everything from fire, theft and vandalism, to loss of suppliers and customers, to price fluctuations, industrial accidents and waste of materials, to lack of productivity and labour strikes, to competition, and very many others.
- Likelihood of occurrence and severity of damage: this is where you narrow down the hazard list. First rank the hazards according to the likelihood that they will occur, and then according to the amount of damage they are likely to cause. The greatest risks to your business are those hazards that appear high on both lists, namely, those that are both likely and potentially very damaging. These are the ones you want to address first.
Elimination or reduction: There are several strategies:
- Avoid or eliminate the hazard. To avoid natural disasters or vandalism, move the plant to a safer area. If you can trace the hazard to a specific operation, you can decide whether that operation is essential to your business and eliminate it if it is not. If a specific supplier or client is a problem, refuse to do business with them.
- Reduce the likelihood of the hazard and severity of the damage. This involves, for example, factory design to separate flammable materials, fire extinguishers, good remuneration and working conditions to reduce the likelihood of a labour strike, maintaining good relations with the potential competition to stay up to date of their operations and products, and so forth.
- Share the risk or the eventual damage. The risk can be shared by outsourcing the risky parts of your operations to another company that is more capable of handling the risks. Potential damage is usually shared by passing it on to an insurance company.
- Accept the risk and budget for it. Price fluctuation and potential changes in suppliers are aspects that most businesses expect and for which they budget.