by Karen D. Swim
©Dimitrios Kessaris | Dreamstime.com
"If we listened to our intellect, we'd never have a love affair. We'd never have a friendship. We'd never go into business, because we'd be cynical. Well, that's nonsense. You've got to jump off cliffs all the time and build your wings on the way down."--Ray Bradbury
Risk is inherent in business. In fact, a certain amount of risk is necessary in business to achieve reward. Whether you are an employee or business owner you had to take a risk just to get started.
Risk is defined as the hazard or chance of loss; the degree or probability of chance of loss. The two components of risk are uncertainty and exposure. Without both components you do not have risk.
So now that we have an understanding of risk, what do we do about it? The first step is to recognize that risk exists. Once you have identified, measured and monitored risk you can manage it.
"Creative risk taking is essential to success in any goal where the stakes are high. Thoughtless risks are destructive, of course, but perhaps even more wasteful is thoughtless caution which prompts inaction and promotes failure to seize opportunity."--Gary Ryan Blair
Risk does not have to induce fear. When effectively managed risk is not only allowable but encouraged.
To measure risk, identify all of the key activities in your business and the risk of those activities. Consider strategic, legal. financial and operational activities. Is there a risk for consumer demand to shift? Do you produce products that may fail? Are there external political or legal risks? You can conduct surveys, brainstorm with your team or trusted advisors, and research industry benchmarks to assess risk. Once measured you can monitor the risks and identify if the risk has increased.
You have four choices when managing risk:
- Accept the risk
- Transfer the risk
- Reduce the risk
- Eliminate the risk.
You can accept risk by default or decision. Business Errors and Omissions (E&O) insurance, Property Insurance and Medical Malpractice Insurance are all examples of transferring risk. You can reduce risk through planning. This could mean things like modifying a product launch date, making tweaks in your business strategy, or enhancing your payment process with additional controls.
Finally you have the option to eliminate the risk entirely. You may decide that in light of your overall business goals the risk is not worth it. Or perhaps you eliminate the component that presents the risk.
Risk planning does not have to be overly complicated, but should not be avoided. Identifying risk also leads you to identify opportunity - opportunity to improve and/or enhance your business. Planning puts you in control of the risk. Like the skydiver who assesses the risk, plans for it and jumps anyway, you too may find yourself flying through the clouds with butterflies in your stomach and a smile on your face.
Have you thought about risk in your business planning? Why or why not?