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Have you heard the full story of the world-famous investor, Warren Buffet? His approach to risks is a truly exemplary one. You'll agree that living life itself is full of risks. I mean, you had to make a lot of uncertain decisions even to be where you are now, reading this. As it is with life, so the backbone of every successful business is risk-taking. For your business to succeed in the global market, taking unsure steps is inevitable.

Risks are decisions taken with uncertainty that will have major effects that could be positive or negative. Risks are not just decisions made to move your business at its pace. They are decisions that can either take your business to its peak or crumble it to the ground. Risk, in essence, affects the stability of your business.

 Although people tend to shy away from taking risks due to the possibility of a negative outcome, taking risks, especially as an entrepreneur, is necessary and often inevitable. You shouldn't take just any kind of risk, anyway. Risks that stem from intelligent calculations and smart decisions usually work out in your favor.

Entrepreneurial risks differ due to the diversity of business ventures. But the common risks all entrepreneurs normally face include:

  • Competition Risks: All the time, new business competitors spring up, and strategies need to be implemented to define the objectives of your business to stay ahead of the competition.
  • Economic and Environmental Risks: Your business has little or no control over xternal occurrences like weather conditions or the fluctuating stock market.
  • Reputational Risks: These are risks that affect the name and character of your business. Anything that tampers with the goodwill of your venture should be addressed with haste.
  • Operational Risks: These factors affect the mode and operational procedures of your business.
  • Compliance Risks: There are risks associated with the necessity of total compliance to laws, orders, and standards guiding your business.
  • Financial Risks: Transactions, charges, and systems that affect the finance of your business constitute financial risks.
  • Hazard Risks: These are risks due to environmental hazards, fire outbreaks, etc., that affect the continuity of your business.

And of course, the list is endless. These common risks and others not mentioned threaten the success of your business, hence the need to tackle them quickly and effectively. To do this, you need to understand the basic principles of managing these risks well.

Managing risks as an entrepreneur involves identifying, analyzing, monitoring, and treating potential risk factors to minimize the negative consequences of the risks. Everyone involved in business ought to identify their business's potential risks and come up with solutions to curb bad effects. This is achieved by systematically following the processes involved in managing these risks.

Steps Involved in Managing Risks

As earlier stated, you need to follow systemic steps to manage risks effectively. The steps involved are:

  • Risk identification
  • Risk analysis
  • Risk prioritization
  • Risk response
  • Risk assignment
  • Risk monitoring

Together, these steps deliver an effective risk management plan specific to your business venture.

  • Risk Identification

This is where you recognize your business's potential risks, uncover and explain all that can affect the outcome. Here, you can consult professionals, carry out research, or brainstorm on everything that can go wrong with your business type. Identifying the type of risk involved would determine your response to it, which could be acceptance, elimination, avoidance, or control of the risk factor. Some techniques you can use to recognize risks are:

  • Properly checking every function of your business and evaluating every factor that can negatively affect your business through that function
  • Reviewing previous problems encountered to identify similar issues that can arise
  • Considering every risk out of your control that affects your business

Recognizing potential risks is key to putting strategies in place so the risks can be dealt with.

  • Risk Analysis

This involves ascertaining the likelihood of the risky event occurring and its impact if it does occur. Proper risk analysis helps you develop a good understanding of the risk and how its impact would affect the objectives of your business. Would the negative impact of the identified problem be gruesome or mild?

A thorough analysis of the problem will help you carry out the next step – risk prioritization.

  • Risk Prioritization

At this stage, the risk is ranked and prioritized depending on its size, severity of results, and frequency of its impact.

Prioritizing risks is important, so you don't dedicate more time to a risk with less serious impact and vice versa. Setting wrong risk priorities can crumble your business because you might not be prepared to deal with a risk not considered and properly ranked.

Risks can be prioritized by classifying them into those that require immediate solution, those that can wait a bit, and those you can always solve at your convenience.

  • Responding To Risks

When responding to risks, you need to understand if the risk factors would positively or negatively affect your venture. Understanding this determines your response, which can be accepting the risk and acting on it, avoiding the risk, eliminating the potential risk, and controlling the risk by developing strategies to prevent the occurrence of the risk if it is negative.

  • Assigning Risks

Assigning risks to employees that can act on them is an optional step, depending on the magnitude of the workforce you have or if dealing with it is above you. Once risks are assigned to be properly managed, it is good that you follow up to be kept up-to-date.

  • Monitoring Risks

This is the step where you track the progress of the risk and develop new strategies when the old systems are no longer effective, as business and risks are dynamic. Monitoring the risks keeps you on your toes to keep revisiting, reviewing, and making changes to control risks as they surface, and being the best risk management Chicago consultant we can assist you here.

Maintaining a risk management culture will help you eliminate chances of business failure, keep you ahead of your competitors, as you will take the necessary steps to avoid being at the mercy of the prospect risk.

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