No matter what kind of business you run, you and your team encounter a variety of different risks during each and every day in operation. It’s absolutely essential that you take the time to reduce risks and establish a safe and secure business, as falling victim to any kind of problem at work can have catastrophic consequences for your brand and its reputation. When you reduce risk, you also reduce uncertainty to allow for more effective planning, higher profits, and increase your appeal to potential investors and lenders.
Thankfully, figuring out how to reduce risk inside your business isn’t as difficult as you might expect, since there are strategies you can implement that reduce risk coming from a variety of sources. Utilize these strategies to maintain ultimate peace of mind that you’re protected from common risks that can sink your business.
So, if you’re interested in finding out more about how you can become a more responsible business owner by reducing risk, then simply read on to uncover some of the best tips and tricks to make the most of now.
Strategies to reduce risk
First, recognize there are several types of business risk, as you can see in the image above. In addition to the risk shown above, firms also face economic risk and financial risks.
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 achieve its financial goals is considered a business risk.
We’ll take a look at each type of risk in the sections below as well as offer suggestions to mitigate or reduce risk across these areas.
Strategic risk
Strategic risk arises when a business doesn’t follow its proposed business model or doesn’t effectively implement the tactics comprising that model. Especially damaging is the risk represented by deviating from your mission and values, as these also create reputational risks.
Strategic risk also arises when a competitor jumps into your strategic space. For instance, when Microsoft Surface challenged the tablet space previously owned by Apple’s iPad. By offering competitive advantages not available on the iPad, the Surface tablet challenged Apple’s profitability.
To reduce risk from strategy, you must conduct a thorough environmental scan, especially conducting competitive benchmarketing, and update that scan periodically (at least once a year). Anticipate competitive actions that threaten your competitive advantage and plan for innovations to maintain your advantage.
Operational risk
Operational risk arises from anything related to your business operations. Here are just a few of those risks:
- A fire, chemical spill, or another safety issue. Focus on fire safety and prevention to reduce this risk.
- Break-in, theft, and damage to your facility. Seek out the support of a specialist security team like Paramount Security Solutions to reduce operational risk. They can monitor your CCTV and act swiftly to reduce danger. Erecting a high brick wall or barbed wire-wrapped fence is also an effective deterrent if you don’t have so much cash to spend.
- Safety for employees and visitors. To reduce risk to people in your facility, you need plans to reduce and mitigate this threat and enforce your standards. For instance, in a manufacturing operation, you must establish safe walkways that reduce the chances of injury as workers and visitors go about their business.
- Cyberattacks. It seems every day you hear about another business that’s either faced a data breach that exposed customer’s personal data or a ransomware attack that locked access to their own data. These attacks are not only more common but more sophisticated and simply educating employees on phishing attacks is no longer enough. To reduce risk, you need advanced cybersecurity, which starts with an audit of your vulnerabilities. You can then plug any holes identified using software and new data processes.
- Equipment downtime. If you can’t deliver products to your market on a consistent basis, your customers will find a competitor that can. Maintaining your equipment and monitoring performance is the key to reduce risk from equipment failure. Installing sensors in a system such as the one below ensures systems work efficiently and send notifications when equipment requires attention. A sensor can also notify you when a piece of equipment is due for routine maintenance.
Image courtesy of Digi - Supply chain issues. Just take a look at what a supply chain failure means by considering how the chip shortage impacted the automobile manufacturing process. Supply chain issues impact your ability to meet customer demand in the same way as equipment failure.
Reputational risk
Damage to your reputation can impact your performance for many years in the future. Reduce risk from this factor by ensuring you meet or exceed customer expectations every day. That means instituting policies for the quality of your goods and the services associated with your business.
For instance, you need a quick and effective way for customers to get help. That might mean using a chatbot available 24/7 to answer questions and address complaints or offering videos to guide consumers through problems they might encounter such as installation, assembly, or setup. You also need contingency plans that spring into action at the first sign of a problem. The faster and more completely you address a failure, the less damage caused to your reputation.
Keeping your promises with customers (both implicit and explicit ones) is key to reducing reputational risk. Never promise more than you can deliver on a consistent basis.
Monitor customer satisfaction and ensure your employees understand your commitment to customer satisfaction. Use customer satisfaction in employee reviews and offer training to ensure employees know how to deliver quality to customers.
Compliance risk
Nearly every government around the world sets compliance standards and expects businesses to adhere to these standards. For instance, OSHA in the US sets safety standards to protect workers’ health and safety, labor laws set standards for hiring, promotion, and compensation, laws similarly impact your marketing efforts such as Can-Spam (forbids sending email without an opt-in), predatory pricing (forbids certain pricing decisions under consumer protection and anti-monopoly laws), balanced messaging (for prescription drugs means you must balance risks and benefits of the drug), and many more.
Failure to comply with these various regulations means fines (for instance, $10,000 for each violation of Can-Spam), forced remediation (such as environmental cleanup, which can cost millions of dollars), imprisonment (for instance, an Enron executive was sentenced to 24 years), or other serious penalties.
Reduce risk of compliance failures by setting up procedures in line with regulations and ensure enforcement of these procedures.
Economic risk
The pandemic is a clear example of economic risk. Almost overnight every business felt the impact of lockdowns, fear, and shortages caused as the pandemic spread around the world. Likely, we’ll never face such a challenge again in our lifetimes but smaller economic disruptions occur with regularity. You can mitigate this risk through effective planning and research to anticipate economic shifts then accommodate these challenges in your business plan.
Financial risk
More businesses fail through cash flow problems than any other single source. Thus, the threat of financial risk is very real. To reduce risk, improve your ability to forecast cash inflows and expenses, establish tools to collect on accounts receivable, and take advantage of opportunities to save cash, such as on-time payments.
Conclusion
Reduce risk to your business using the strategies listed above to give your business the best chance possible to survive.
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