Steps for Developing a Risk Management Strategy for Your Business

Developing adequate risk management strategies for your business is the best way to protect yourself and your company from damages. It can seem intimidating to create one, but these steps make it easy to come up with a risk management model that’s right for you.

Identify Risks

The first step of any risk management plan is to determine the risks to your business in detail. Understanding these issues will help you realize the full scope of possible things you should have protection against. Of course, you should address the obvious concerns like fire, flood, theft, and market competition, but there are plenty of other things you should also consider such as natural disasters, power failures, and illness.

Ways of identifying risks including asking yourself what could happen to your business, whether the risks are external or internal, and who would be affected if the incident happens? Other things you should include are financial issues that could transpire from market or investor problems.

Evaluate the Impact

After you've completely identified the risks to your company, you can evaluate the impact they'll have for you and anyone else affected. Separate minor risks from major risks to create a plan that will be most effective. Once you've separated minor from major, you can begin to determine the level of risk of each event, which is calculated by the likelihood that it'll occur times the consequences it would bring.

The likelihood is most often represented by a one to four scale or low to very high. For example, if the incident has a "very high" level of risk, it happens more than once per year in the industry. However, if it's low, it may have only happened once in the past. Consequences can be on the same scale of one to four, four being financial losses that would severely impact your cash flow.

Once this is completed, you can ascertain the level of risk. If a situation has a high amount of risk, show it immediate attention. Elevated levels of risk should see fast action, but it's not the top priority. 

Treat the Risks

The next step is to treat the risks you found in the previous step. If possible, try to avoid the risk at all costs—but this may not always be possible. You can attempt to reduce the amount of risk or financial loss from the incident by reducing its likelihood. For example, you could increase quality control, auditing, or minimizing the exposure to the risk. Some risks are impossible to avoid or reduce, which is when you have to create an incident plan that includes steps to recovery.

Review and Update the Risk Management Plan

Your risk management strategy should be examined on a yearly basis to make sure everything is still accurate. By reviewing it, you can make any changes to cover any situations that may have appeared during the year. By reviewing, you're also ensuring that your risk management plan is as protective as possible and the recovery after an incident will go smoothly.