Risk Management Process: Guide to Managing Risk
The Small Business Guide to Managing Risk
Every business is exposed to risk, it is inherent in every action and transaction the business enters into. Risk cannot be eliminated entirely, so it is important to know what risks you are exposed to and have a Risk Management Process, the likelihood that a risk is to materialise, if a risk does materialise will that have a knock-on impact to other risks, and if a risk materialises what is the most likely impact on the business?
A Risk Management Process can help SMEs that are exposed to at least the categories of risk listed below:
Financial Risk
Operational Risk
Reputation Risk
Environmental Risk
Cyber Risk
Business Risk
Cash Flow Risk
Interest Rate Risk
Counterparty Risk
Credit Risk
Liquidity Risk
Market Risk
Political Risk
Regulatory Risk
There may be more depending upon the business the company undertakes, and a company may classify risks using different headings, but the consequences of any of these risks materialising could be catastrophic. It is also important to know and understand how risks are interlinked.
Risks may be internal, such as the risk from human or process error, others such as interest rate are external.
Understanding what the risks are, how they are changing, and how to most effectively protect the business from losses (financial and otherwise) due to risks crystalising, is essential. It is both an art and a science. Most SMEs cannot afford the cost of a full-time Risk Management Process, so many owners of small businesses are either unaware of or pay insufficient attention to the risks the business is exposed to, preferring to concentrate on the daily struggle to ensure there is enough cash to keep the business alive. That is understandable, but dangerous.
Risk Management Process: A Process for Managing Risk
Managing risk is complex, although the Risk Management Process is well-documented and – at least in theory – it’s linear. There are a number of frameworks for a Risk Management Process, but almost all of them agree that the steps noted below are essential.
Identify the risk.
Document the risks. That is absolutely essential.
Decide how much risk you are prepared to take - build a risk appetite.
Map the risk to the relevant business objectives.
Analyse the risk.
Measure the risk (inherent risk). What is the likelihood of risk materialising? If it does materialise what is the impact?
Evaluate or rank the inherent risk comparative to other risks.
Mitigate/treat the risk.
Measure the extent to which the risk has been mitigated in both absolute and relative terms (residual risk).
Evaluate or rank the residual risk comparative to other risks.
Monitor and review the risk.
Rinse and repeat frequently.
The need for knowledge and understanding of the Risk Management Process
We are often asked why many companies and individuals are taken by surprise when risks materialise. Generally it comes down to a combination of the following:
Insufficient knowledge and understanding of the Risk Management Process.
Inaccurate measurement of risk exposure.
A lack of resources – human and otherwise – dedicated to the Risk Management Process.
Lack of ownership of risk at the correct level.
Inaccurate understanding of the links between risks – including risks that seem at face value to be totally unconnected.
Evaluating risk in silos.
Not understanding the likelihood of risks crystalizing, and/or the impact (financial and non-financial) of crystallisation
Lack of attention to the changing risk profile – including not identifying emerging risks.
Apathy.
Complacency.
How to get the Risk Management Process right
SMEs benefit from the comfort that their business risks are known, understood, and mitigated. That is the cornerstone of resilience, which provides comfort that the business can overcome the threats that they are exposed to in their chosen markets. The steps which follow build that foundation, and implemented properly SME owners will sleep more easily.
Provide appropriate risk management training for your staff. Make sure that skills are regularly reviewed against the dynamically changing risk landscape.
Document the risks, otherwise there is a significant chance that some risks will be forgotten. Manual documentation is ineffective and spreadsheets are unreliable, so automate the Risk Management Process as soon as practical.
Map each risk to every part of the process it relates to – it is very likely that many risks will relate to a number of operational points.
Identify the risks which are interlinked and understand the connections between risks.
Decide how much risk you are prepared to take – commonly referred to as a risk appetite,
Do not assess risks in silos. Unless you have a holistic approach you are exposed to foreseeable negative events.
Use risk as a profit centre.
Evaluate the risk profile frequently,
Concentrate on the major risks, but do not ignore the others.
Evaluate what will happen if a risk crystalises – and what other risks may follow in a ‘knock-on’ effect.
Assign an owner to each risk. One individual may own more than one risk.
Be vigilant about emerging risks and the damage they can do to your company.
It’s not just the risks in your operations, you must fully understand the risks which arise from dealing with outside parties such as suppliers, competitors, and clients.
How we can help you with your Risk Management Process?
Our team are professionally qualified and highly experienced risk managers. In addition to their consultancy careers they have:
Held senior management positions in the financial industry, retail, social work, professional trainers, and the public sector including Heads of positions in risk management and internal audit.
Their Board level positions include NED appointments in the charities sector and the financial industry, setting and directing the company strategy, and embedding appropriate monitoring frameworks.
They have trained a multitude of people from a plethora of businesses, helping them to significantly reduce their exposure to risk.
They work in partnership with you to examine your business, develop a Risk Management Process and a Risk Policy, document your risks, map them to your business activities, build a robust risk mitigation framework, and provide the tools to automate the process.
This vast experience means that you will get a Risk Management Process tailored to your needs, linked to your business strategy and business objectives.
We can:
Train your staff through a tailored Risk Management Process programme.
Embed a Risk Management Process tailored to your business needs.
Determine and document a Risk Management Process.
Determine and document a Risk Policy.
Help build your risk register.
Determine the likelihood and impact of risks materialising.
Help you determine your risk appetite.
Map the risks to your strategic and operational objectives.
Ascertain the links between risks.
Help you measure risks in absolute and relative terms.
Assess the value of your risks in financial and operational terms.
Automate the risk register.
Advise as to the most appropriate risk owners.
Provide a monitoring programme tailored to your needs.
Want to learn more? Book a call with us to discuss how we can deliver what you need. The call is free, with no obligations attached, so you have nothing to lose and a great deal to gain.
Want to learn more? Visit one of our Risk Management pages to find out more about how we can help:
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