Thursday, December 11, 2008

Identifying Common Risks and Threats You Might Face

Conducting business in today?s world almost always involves some type of risk, but never more so than today. The recent world market upheavals have left most of us unsettled and uncertain about the future. In your planning, risk is best defined as how you perceive the likelihood of suffering a loss, and the perception of the impact of a particular risk varies from person to person. Assessing risks in advance allows you to determine the most cost-effective strategies to handle each type of risk. This is another exercise that doesn?t require hiring a professional facilitator, and it is a great opportunity to include your team since they may have different perspectives.

Identify all potential risks to your organization. These may include, but are not limited to, the following:

? Economic woes: A downturn like we?ve seen in the economy and consumer spending can threaten business depending on how sensitive your business is to changes in economic conditions.

? Financial issues: These can include internal financial risks like unexpected expenses and poor budgeting as well as external risks like the state of the stock market and interest rates which are more difficult to control.

? Lack of processes: Internal systems pose a risk from failures of accountability and controls, organization, and fraud. (i.e. consumer fraud and employee fraud)

? Legal or regulatory action: Changes in the political environment affect businesses through tax policies, consumer confidence, government policies, foreign relations and more.

? People issues: Losing key people to illness, resignation, maternity leave, and death are common threats to organizations.

? Tarnished reputation: Confidence in a company can be hurt by the loss of a business partner or employee confidence or damage to one?s reputation in the market.

? Telecommunication, computer, or key equipment failure: Disruption of daily tasks can be caused by an electrical outage, a shortage of supplies, and loss of access to essential assets like your digital files.

Assessing the Impact of Your Risks

Once you?ve identified the potential threats to your organization, follow the steps below to assess them and start thinking about how to manage them:

1. Rate the probability of each particular threat occurring on a scale from high to low. By rating them, you eliminate the ones that are unlikely.

2. Look at the risks that you rated highly or the most likely to occur. Determine the possible impact of one of these disasters on your business and assign a monetary value.

3. From the list of associated monetary values, select the three risks that have the biggest impact on your business.

Taking Action to Manage the Real Risks

After you?ve evaluated the risks and prioritized them, you can start to look at ways to manage them. Here are some suggested ways of managing risks:

? Utilize your current assets. Find ways to use existing resources to offset risk. (i.e. reallocating responsibilities, improving accountability and internal controls)

? Invest in new assets. You may have identified some risks that can be managed through the purchase of new assets. For example, if the cost of an extended electrical outage to your business is substantial, you could store files off-site where employees can access them through home computers. Diminishing the risk is often better than the liability.

? Develop continuity planning. You may decide to accept a risk but choose to develop a plan to minimize its effects if it actually happens. A good continuity plan allows you to take action immediately if you find yourself in a crisis management situation.

Keeping the previous cost-benefit analysis in mind, you may find that in some cases it?s better to play the odds than to incur the costs of managing the risk. But at least you will have faced up to your business risks on your own terms.