Forewarned is Forearmed: Four Steps to Fight RisksWritten by Angela on May 11, 2020
It’s early morning and you start scrolling through your business emails, ready to start your day. Then, you read about it: your supplier tells you that the items you need from them for this month won’t be available until next month.
Or perhaps the online platform you use to advertise your business has new rules in place, and your account has been put on suspension for past campaigns you’ve run. Sound familiar?
Try our online invoicing software for free
Accept online payments with ease
Keep track of who's paid you
Start sending invoices
These are all possible issues that businesses of all sizes may face, whether you’re a mom-and-pop shop or a business employing hundreds of workers. As business owners, when something like this happens, we naturally switch on our problem-solving caps and work to fix the issue or lessen its impact–we don’t want our business to fail.
Unfortunately, sometimes these solutions take a while to put down or cost a lot to execute. Perhaps, in the above examples, you don’t have a secondary supplier for the items you ordered. Maybe you’re forced to use a more expensive venue that you don’t have prior agreements with and your customer is upset.
Talk about less than ideal circumstances!
So what is risk management?
If you’ve already thought about your “Plan B” in the past, just in case your problem comes up, congratulations–you’ve saved your business some time. Perhaps you’ve previously contacted a secondary supplier and they’re only too happy to sell to you.
Or you have a number of venue partnerships already in place and can easily move your client’s event with minimal hassle and change in cost.
The above cycle is basically your grassroots-level risk management for any business. No matter how small your business is, using the principles of risk management will help you not just to manage problems that may come up, but also possibly open your eyes to better ways of doing things.
Putting contingency plans in place means less downtime for your employees, better security for your clients, and minimal loss of sales for your business.
Let’s get started!
Creating your risk management plan
Putting up a risk management plan doesn’t need to be so daunting. It’s as simple as:
- Identifying the risks
- Assessing and prioritising these risks, and
- Putting down plans to address and monitor them
Let’s go through these steps one by one.
Step one: find out what puts your business at risk
These risks can range from simple loss of internet connectivity at the office, to natural disasters that stop operations for you or your partners. Sit down and go through everything your business needs to do. Be as forward-thinking as you can be, because it will help how thorough your planning will me.
Think to yourself, in order to sell my products, what do I need to do? Where do I get my raw materials or products? How do my products get to my customers? Examples of risks may include:
- your supplier cannot meet your timeline or provide your items or raw materials;
- your website goes down and cannot be accessed by buyers;
- the local post office has a backlog and will result in shipping delays;
- your physical shop has a power blackout;
- a typhoon has flooded your warehouse;
- your store minder cannot come to work; etc.
In order to serve my clients, what does my business need? Are there online services I use? Do I have employees to manage? You may come across problems like:
- your project management software or client database goes down;
- your email cannot be accessed;
- key employees are sick and cannot come to work;
- your office needs to be shut down temporarily by your landlord;
- your computer was hacked and you do not have access to your work documents; etc.
You’ll initially find yourself wondering things like how do I get new leads? Where do I advertise? How do I get the word out about new products or services? Make sure to look out for risks such as:
- an irate customer leaves a bad review;
- an influencer lashed out and their post is going viral;
- online ad platforms have put a ban on your account; your designer quit his job; etc.
List down all the risks you can think of. It doesn’t matter how small and insignificant they may seem, or how big they will impact your business. Just list them down somewhere (categorising optional), so that you can refer to them later.
Pro tip: This practice alone might open your eyes to some blind spots you previously had about your business. Perhaps there are ongoing financial issues or process- and policy-oriented problems!
Don’t be afraid to reach out to partners and employees for their input on what might impact your business’s day-to-day operations. The more thorough you are, the better the outcome of this process of risk management for your small business.
Step two: Assess and prioritise these risks
Once you’ve got a list, it’s time to figure out how much of an impact they will have on your business if/ when it happens. Assess each line in your risk list. The formula for this is simple:
the consequence/impact if it occurs
Some companies use monetary values when categorising potential impact. For example, a loss of less than $1,000 revenue, and so on. You can do the same if it makes sense for your business. Values will differ based on your business and what you do.
Set values for each variable, for example:
And here are some more examples.
Let’s say you’ve identified the risk “an irate customer leaves a bad review”. Determine how often this might occur. You may even have data for this if you’ve been in business for a while! How bad will the impact be for your business?
For example, you get an irate customer review roughly two to three times a year (once a quarter: Level 2), and over time, there are significant numbers of potential customers who consider the bad review helpful and presumably do not buy (significant impact on sales: Level 2).
Impact Level 2 (significant impact on sales)
Bad Review risk level = Risk Level 4
Perhaps you have a delivery partner who passed by twice a week to collect your parcels. Unfortunately, they don’t pick up your packages for a week.
This occurs about once or twice a quarter (more than once a quarter: Level 2.5), though you haven’t really received complaints about delivery delays aside from one or two customers who message you directly (minimal servicing delays: Level 1).
Impact Level 1 (minimal servicing delays)
Delayed Pickup risk level = Risk Level 2.5
What about if a fire breaks out in your retail shop, and has to close down for a while?
The likelihood for this to happen seems small (once a year, even less: Level 1), but it means you have damaged inventory and cannot open shop for the duration (business grinds to a halt: Level 3).
Impact Level 3 (business grinds to a halt)
Fire risk level = Risk Level 3
Do this for all the lines in your list, and rearrange them by the computed Risk Level. In the above examples, the irate customer review is a Risk Level 4, the delivery partner delay is a Risk Level 2.5, and the fire risk is a Risk Level 3.
Based on the above risk levels, you can see that the irate customer reviews issue needs to be addressed first, over the fire risk and delivery partner delays.
Step three: make plans and/or policy changes to address risks
You can start going down your Risk List and brainstorm on how to address the problems when they come up.
Bad reviews? Perhaps allot thirty minutes every week to quickly look through new reviews, and respond publicly to bad reviews. Maybe contact the customer to help them with their issues. Bonus: the customers may even see your efforts at connecting with them, and laud your company for being on top of things!
Retail shop closing down an issue? Perhaps it’s time to look into putting up an online shop this year.
With an online shop, buyers can still browse your goods and you have some sales if your brick-and-mortar shop is closed. Bonus: now you have an extra reason to get started on making your website!
Delivery partner delays? You don’t need to always be the one to make amends; maybe you can talk with your partner and have an agreement in place where you are reimbursed for delays they have with their service.
You don’t need to address them all immediately. Sometimes they don’t have high enough priority for you, and you need to focus on other things. That’s okay! Risk management for any business won’t magically solve your problems.
Just table them for now and make sure to get back to them later, when you have the time and resources to address them.
Step four: keep an eye on your plans and review them from time to time
Follow-through is important. Monitor how well your changes are going. Is it too much work than you intended? Is it too difficult to do regularly? Maybe it’s ceased to be as effective at doing its job. Are there new solutions in the market that you can explore?
There may also be new risks that you haven’t previously seen. Taking the time to come back and review your plans will help you stay on top of things. Remember that risk management for your business is an ongoing process so that you’ll be better armed for the future.
Hindsight is 20/20
Risk management is not a silver bullet. Some things are easy to address with small policy changes. Sometimes the change takes more time to do.
Sometimes you could transfer the risk to another business, by taking on partnerships, buying insurance, and so on. And even sometimes, it’s not feasible for you financially or logistically to address the risk.
But forewarned is forearmed, and you can start seeing places of growth. It’s never too late to start risk management for your small business.