Will Kenton‘s definition of business risk is perfectly stated; “Business risk is the exposure a company or organization has to factor(s) that will lower its profits or lead it to fail. Anything that threatens a company’s ability to meet its target or achieve its financial goals is called business risk. These risks come from a variety of sources, so it’s not always the company head or a manager who’s to blame. Instead, the risks may come from other sources within the firm or they may be external—from regulations to the overall economy.”
There are 4 main categories of risk in operating and growing a business, these include:
- Strategic Risk
- Compliance Risk
- Operational Risk
- Reputational Risk
Factors that can influence these risks are cost vs. profit, competition, demand for different products/services, the overall economy, and government regulations.
Tips on Mitigating Risk in your Business
In order to mitigate any risks associated with running your business successfully it is important to first assess what risks affect your business model. Predictive analytics can be used to assess prior consumer behavior to predict what products and ads are effective at gaining loyal customers. This can aide in reducing financial risk. Market research prior to launching your business is another effective tool at mitigating start up costs and helping you build a strategic business model that will be successful in the current market.
In Graham Rapier proposes using a probability scale to further assess risk in his article “9 Steps to Managing Risk in Your Business”, This scale aids in prioritizing what risks should be mitigated first depending on their probability of occurrence.
Once the risks are identified, it is important to produce a strategy of how to reduce the effects of these risks in an efficient manner. In the case that the risk does occur, it is important to record how the risk was managed so in the case of re-occurrence your business is prepared.
According to an article written by Michael Herrera there are 4 common strategies used to mitigate risks:
1. Risk Acceptance- is when a business accepts the risk due to the fact that any method of reducing the effects of the risk will outweigh the benefits.
2. Risk Avoidance- Risk avoidance is the opposite of risk acceptance. It is the action that avoids any exposure to the risk whatsoever. It’s important to note that risk avoidance is usually the most expensive of all risk mitigation options.
3. Risk Limitation- involves understanding that certain risks are inevitable. Therefore; businesses automatically produce a backup plan to quickly.
4. Risk Transference- involves giving a risk that is not associated with your companies’ core objectives to a third party to handle.
Real Time Survey Solutions:
RavenCSI’s real time online survey software is able to provide “instant feedback” and leadership accountability to effectively reduce market share loss and mitigate risk. First step is to capture the issues real-time or rapidly right after the event to manage risks in a timely manner. We also have a dynamic dashboard that allows you to pool data making it easier to analyze any risks that pose a threat on your business’ revenue and reputation. Let our dedicated team of experts help you build and manage a survey system tailored to mitigate risks affecting your business. Contact us today to get started.
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