Assessing risk is an important component of any business regardless of size. This involves looking at micro and macro factors that may adversely affect a business. While it is necessary to take some risks in business, it is essential to identify and distinguish those that are likely to bring reward and the risks that require mitigation. Outlining whether the company is taking the risk voluntarily or involuntarily. What are the best ways to assess risk, both micro and macro-economic?
1. SWOT: Analysing the company’s strengths, weaknesses, opportunities and threats is a good method of ascertaining what areas of the business are susceptible to risk and potential rewards from taking on risk. Identifying where the risk may come from and what areas of the business is set up to positively combat risk or with the possible capability of coping with adverse risk.
2. PESTEL: Analysing the macro-economic factors surrounding politics, economics, society, technology, environment and law allow for the company to identify risks more precisely. Most of the risks identified in PESTEL analysis occur outside the realms of company control and thus, require a contingency plan to protect the company from any adverse changes to the climates aforementioned.
How to deal with Risk once it has been identified and assessed?
Acceptable risks require no mitigation or action by the company, where the impact of an adverse outcome would be minimal and there is potential for some benefit. For other inherent risks controls can be implemented that can eliminate some risks and quell others that are internal and tend to result from the firm’s actions rather than being a factor of macro or outside intervention. These controls would include company policy for operational and financial controls and insurance among other things.
Dealing with external risks can be much harder to plan for and control. One firm cannot control a macro-event but can prepare itself for the effects such an event will have directly on the company. Contingency plans are the best form of protection from external adverse risks. Examples of such risk minimisers would be ensuring cash-on-hand always in the case of liquidity issues.
Having a change culture embedded in the framework of your business is also an excellent way of dealing with adverse risk. If your business has shown the capabilities of swiftly adapting to macro-economic changes in the past such as integration of technology, your business will have less problems dealing with and overcoming obstacles associated with negative risk outcomes.
My Advice: Risk assessment is vital to the survival of any business and thus, it should be recommended that you seek out external advisors who are experienced in such areas. Protect your business from adverse risks.