Tuesday, April 29, 2008

Look Mom No Hands! Dealing with Risk in Business

by Karen D. Swim

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©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.

Measuring Risk

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.

Managing Risk

You have four choices when managing risk:

  1. Accept the risk
  2. Transfer the risk
  3. Reduce the risk
  4. 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?

8 comments:

Anonymous said...

Karen,

As much as my brash and bold personality likes to say otherwise, I am terrified of risk. I think it must have to tie into fear of success, and fear of failure also. So, no, I really haven't planned for it much.

If I get an article rejection query notice, I just keep marching on. What else is there to do?

I'm learning so much as I go along, from others, and from the process itself, that it becomes less fear filled as time goes on.

Unknown said...

Ellen, you are braver than you know. Fear never goes away for even the boldest among us. The brave are those who feel it and move forward anyway. I am learning these lessons too and I must say it is nice to not have to fall down in a deserted forest where no one can hear your cries. :-) My goal this year is to amass rejection notices,of course the real goal is to get some acceptances but gotta get the no's first! Please keep me on track. So far, none because I have not submitted anything!

Karen

Anonymous said...

Online survey forums are a great way to start your business surveys. This is for the simple reason that forums dedicated to people looking for work from home opportunities or paid surveys will have members who have already blazed the trail.

Unknown said...

@Add, thanks for adding that detail. You are so right about online surveys being a great tool. I really appreciate you stopping by and sharing this resource!

Karen

Anonymous said...

yes, but how did you learn this lesson? I read this before and I know it, I live it, but I don't know how you, my friend, took a risk, why you took that risk, what happened and what you learned!!!!!!

Unknown said...

@Darren, you make a great point and at a later date I may delve into specific risk examples. This particular issue was not so much a "personal lesson learned." I learned about risk management and business planning while working in Corporate America and brought that knowledge to my own business. However, when my opinion/experience can offer value to readers or elucidate an issue, I freely share it. :-) Thanks for continuing to challenge me Darren, it is appreciated.

Anonymous said...

Darren is good at that. He is great with the philosphical conundrums. And he's a good artist too.

Unknown said...

@Ellen, yes he really is good at challenging you to think. I do follow his blog too and his artwork. He is talented. If he keeps checking in I am sure to get better. :-)