The main reason that some people take opportunities when they arise, and others do not, is that some people are ready.
They have their business plan ready and all they need to do is take advantage of the opportunities.
Where can you find the right business plan?
If your business is based in the United States - click here
If your business is based in the U.K. - click here
Ideas To Action.
Part 63 - Risk Management.
Risk management applies to many aspects of any business. Your business is subject to internal risks (weaknesses) and external risks (threats). Generally, you can control internal risks once you identify them. However, external risks may be out of your control.
Not all risks to your business come from negative sources. Risks may come from positive sources, or opportunities. Expansion and growth are opportunities, but they also bring additional risk.
The ultimate goal is to minimize the effects of risks on your business.
One of the most important investments you can make in your business is creating a business plan, especially when identifying risks. Creating a business plan will help you assess risk areas, those areas impacting your ability to continue business and to grow.
The continuation of your business, in the event of any risk, should be addressed in your plan. Look at anything that could halt, slow, or affect the revenues of your business. List these risks, rank them in importance, and look at potential costs. Identifying and assessing risks is something that will require time and should be revisited periodically. Be sure to schedule time in your calendar to identify areas of business risk.
Identify and assess risks - Risk is everywhere. Success in any business often comes down to recognizing and managing possible risks associated with potential opportunities and returns. The types of risks faced in most businesses are quite varied and far ranging. Risks typically include both financial and physical categories.
- Types of risk include sometimes apparent hazards, such as safety and health risks associated with operations, as well as financial risks from exposures to market price volatility, counter party credit defaults, and legal liabilities. Some risks are intuitively obvious; unfortunately, many are not. Risk categories include: Market, Credit, Legal, Regulatory, Political, Operational, Strategic, Reputational, Event, Country and Model Risks. So first identify possible risks throughout your business.
- Know the numbers - Systematic processes to identify and rank risks by order of magnitude can be a key first step, but effective risk management strategies typically depend on quantification of risks, often through probabilistic modeling techniques.
- Risks are interrelated - Interactions and correlations of risks are a key element of which to be aware in identifying, quantifying and mitigating risks. For example, exposure to credit risks may also affect market price risks, whereas operational risks such as fraud may create legal and reputational risks.
- Continually reassess risks - Things change, and so do risks. Market conditions and volatility levels change, financial strength of counter parties change, physical environments change, geopolitical situations change, and on-and-on. And these changes can be rather sudden, or they can be creeping and hidden.
- Commit adequate resources - Effective risk management also requires considerable expertise and resources, from basic risk control, compliance and governance activities, through advanced quantitative risk analysis. The costs for these resources are usually not cheap, but as has been proven repeatedly by high-profile business failures, the cost of losses due to risk management weaknesses or lapses can be catastrophically high.
- Review the cost of risk mitigation - Risk mitigation strategies depend on the capacity of the business to sustain risks and possible losses.
- Reduce exposure - Risks arise from exposure. A commonly accepted definition of risk is 'exposure to uncertainty' (at least for that uncertainty for which one is concerned about the outcome). Reduce the exposure and you likely reduce the risk. The selected approach and structure of business activities can have a significant effect on the exposure and risk levels generated.
- Assess the Risk / Return Ratio - Risk management does not equate to risk aversion; however, decisions driven by risk / reward assessments usually have a higher probability of successful outcomes. A consideration in such risk-based decision-making should also be the capacity of the business to sustain risks.
- Monitor for quantum shifts in risk levels - A key value of quantitative risk measures is to highlight significant changes in risk levels. Although opinions may differ on the optimal methodology for some valuation metrics, significant changes or trends in risk metrics, such as Value-at-Risk measures, can provide a key signal to management.
- Create a risk aware culture - Educate your business in practical aspects of risk management, and that especially includes the most junior employees. Risk management responsibilities should be clear. Training and building awareness can lead to a risk management culture that will drive business success.
Ideas To Action - next
A Great Business did not just happen - It was planned that way.