A Risk Analysis refers to the process of recognising potential issues that could negatively impact the business and identifying strategies to mitigate those risks. The risks could be caused by both external and internal factors, and by nature to be systematic (i.e., inherent to the entire market) and non-systematic. It is important to understand that risks occur regardless of the nature and size of the business. Moreover, the risks businesses face can have a diverse and deep impact on business operation and could potentially affect business’s long-term viability. That is why it is important to identify all possible risks so that mitigation strategies can be put in place to address these. As for new and start-up businesses, risk management is regarded an essential part of any successful business plan.
Major risks faced by the businesses
In order to develop a mitigation and risk response strategy, business owners should first identify the key risks they might face. A large number of small business owners face the following 4 major risks that may prevent them from achieving their goals. For additional information, see our guide of risk factors to minimize when at the stage of launching a business.
Risk Analysis Process
Risk analysis process for your company should be dynamic and interactive process rather than a static and require continuous update and analysis of information with all risk elements due for review in a specified period.
A risk management process needs to cover the following elements:
The first and most important step of performing risk analysis is to identify and describe potential risks that are related to your business. You can start with a brainstorming session with your team members and define categories for the risks that are relevant to your business, such as Governance & Ethics, Competition, Innovation, Business, Economy, Reputation, Interest Rate, etc. Once you have identified all the risks, they should be categorically placed in a document known as the Risk Register/Library.
Use one of the following schemes to describe the chances that a risk will occur:
The results of the previous step are then used to prioritise risks to establish a most-to-least-critical importance ranking, where 1- Negligible and 5 – Catastrophic (How big of an impact would this risk have if it were to occur?). Ranking risks in terms of their criticality or impact provides insights on where resources may be needed to manage or mitigate the realisation of high probability/high consequence risk events.
Systematic risk is inherent to the entire market, where unsystematic risk is unique to a specific company or industry. Types of unsystematic risk include a new competitor in the marketplace with the potential to take significant market share from the company invested in, a regulatory change (which could drive down company sales), a shift in management, and/or a product recall.
When risks are determined, some risks are better not to avoid or accept. In this instance, you need to explore the ways of risk mitigation. Risk mitigation refers to the processes and methods of controlling risk. When you identify risk and its probability, you can allocate resources for management.
When you are at the beginning of setting up your business, one of the best ways to help recognise, define and monitor risks is to have structure tools within your organisation. Planium Pro software covers ‘Risk Analysis’ that can help you to set up controls and procedures and have the whole picture of the risk exposure with real-time dashboards.