Risk Management for business, A guide for businesses on Risk Management by Pathway Group, Birmingham

1. The Risk
Management
Process
grow
Tips

2. RISK MANAGEMENT FOR SME BUSINESSES
Every business faces risks that could present threats to its success.
Risk is defined as the probability of an event and its consequences.
Risk management is the practice of using processes, methods and tools for managing
these risks.
Risk management focuses on identifying what could go wrong, evaluating which risks
should be dealt with and implementing strategies to deal with those risks. Businesses
that have identified the risks will be better prepared and have a more cost-effective way
of dealing with them.
The types of risk a business faces
The main categories of risk are:
• strategic, for example a competitor coming on to the market
• compliance, for example responding to the introduction of new health and safety
legislation
• financial, for example non-payment by a customer or increased interest charges on a
business loan
• operational, for example the breakdown or theft of key equipment
• These categories are not rigid and some parts of a business may fall into more than
one category. The risks attached to data protection, for example, could be considered
when reviewing both operations and business’ compliance.
Other risks include:
• environmental risks, including natural disasters
• employee risk management, such as maintaining sufficient staff numbers and cover,
employee safety and up-to-date skills
• political and economic instability in any foreign markets you export goods to
• health and safety risks
• commercial risks, including the failure of key suppliers or customers
THE RISK MANAGEMENT PROCESS
Businesses face many risks; therefore risk management should be a central part of any
business’ strategic management.
Risk management helps to identify and address the risks facing a business and in doing
so increase the likelihood of successfully achieving businesses objectives.
A risk management process involves:
• methodically identifying the risks surrounding business activities
• assessing the likelihood of an event occurring
• understanding how to respond to these events
• putting systems in place to deal with the consequences
• monitoring the effectiveness of risk management approaches and controls
© pathway2grow 2013
so increase the likelihood of successfully achieving businesses objectives.
A risk management process involves:
methodically identifying the risks surrounding business activities
business’ strategic management.
Risk management helps to identify and address the risks facing a business and in doing
so increase the likelihood of successfully achieving businesses objectives.
Businesses face many risks; therefore risk management should be a central part of any
business’ strategic management.
THE RISK MANAGEMENT PROCESS
Businesses face many risks; therefore risk management should be a central part of any
employee safety and up-to-date skills
political and economic instability in any foreign markets you export goods to
commercial risks, including the failure of key suppliers or customers
environmental risks, including natural disasters
employee risk management, such as maintaining sufficient staff numbers and cover,
employee safety and up-to-date skills
political and economic instability in any foreign markets you export goods to
when reviewing both operations and business’ compliance.
environmental risks, including natural disasters
employee risk management, such as maintaining sufficient staff numbers and cover,
for example non-payment by a customer or increased interest charges on a
for example the breakdown or theft of key equipment
These categories are not rigid and some parts of a business may fall into more than
one category. The risks attached to data protection, for example, could be considered
when reviewing both operations and business’ compliance.
for example responding to the introduction of new health and safety
for example non-payment by a customer or increased interest charges on a
for example a competitor coming on to the market
for example responding to the introduction of new health and safety
Risk management focuses on identifying what could go wrong, evaluating which risks
should be dealt with and implementing strategies to deal with those risks. Businesses
that have identified the risks will be better prepared and have a more cost-effective way

3. As a result, the process of risk management:
• improves decision-making, planning and prioritisation
• helps allocate capital and resources more efficiently
• allows businesses to anticipate what may go wrong, minimising the amount of fire-
fighting that has to be done, in a worst-case scenario, preventing a disaster or serious
financial loss
• significantly improves the probability that a business will deliver their business plan on
time and to budget
Risk management becomes even more important if a business decides to try something
new, for example launch a new product or enter new markets. Competitors following into
these markets, or breakthroughs in technology which make a product redundant, are two
risks that businesses may want to consider in cases such as these.
HOW TO MANAGE RISKS
There are four ways of dealing with, or managing, each risk that is identified. You can:
• accept it
• transfer it
• reduce it
• eliminate it
For example, a business may decide to accept a risk because of the cost of eliminating
it completely is too high. They might decide to transfer the risk, which is typically done
with insurance. Or you they may be able to reduce the risk by introducing new safety
measures or eliminate it completely by changing the way they operate or produce a
product.
When a business has evaluated and agreed on the actions and procedures to reduce the
risk, the measures need to be put in place.
Risk management is not a one-off exercise. Continuous monitoring and reviewing are
crucial for the success of any risk management approach. Such monitoring ensures that
risks have been correctly identified and assessed and appropriate controls put in place.
It is also a way to learn from experience and make improvements to a risk management
approach.
All of this can be formalised in a risk management policy, setting out a business’
approach to and appetite for risk and its approach to risk management.
Good risk management can improve the quality and returns of a business.
© pathway2grow 2013
approach.
All of this can be formalised in a
approach to and appetite for risk and its approach to risk management.
crucial for the success of any risk management approach. Such monitoring ensures that
risks have been correctly identified and assessed and appropriate controls put in place.
It is also a way to learn from experience and make improvements to a risk management
risk, the measures need to be put in place.
Risk management is not a one-off exercise. Continuous monitoring and reviewing are
crucial for the success of any risk management approach. Such monitoring ensures that
When a business has evaluated and agreed on the actions and procedures to reduce the
risk, the measures need to be put in place.
Risk management is not a one-off exercise. Continuous monitoring and reviewing are
Or you they may be able to reduce the risk by introducing new safety
measures or eliminate it completely by changing the way they operate or produce a
When a business has evaluated and agreed on the actions and procedures to reduce the
For example, a business may decide to accept a risk because of the
it completely is too high. They might decide to transfer the risk, which is typically done
Or you they may be able to reduce the risk by introducing new safety
measures or eliminate it completely by changing the way they operate or produce a
For example, a business may decide to accept a risk because of the
it completely is too high. They might decide to transfer the risk, which is typically done
There are four ways of dealing with, or managing, each risk that is identified. You can:There are four ways of dealing with, or managing, each risk that is identified. You can:
these markets, or breakthroughs in technology which make a product redundant, are two
risks that businesses may want to consider in cases such as these.
Risk management becomes even more important if a business decides to try something
, for example launch a new product or enter new markets. Competitors following into
these markets, or breakthroughs in technology which make a product redundant, are two
significantly improves the probability that a business will deliver their business plan on
Risk management becomes even more important if a business decides to try something