Every business faces risks that could pose threats to its success.
Risk is defined as the probability of an event and its consequences. Risk management is the use of processes, methods and tools to manage those risks.
Risk management focuses on identifying what could go wrong, evaluating what risks should be addressed, and implementing strategies to deal with those risks. Companies that have identified the risks will be better prepared and will have a more cost effective way of dealing with them.
This guide shows how to identify the risks your business may face. It also discusses how to implement an effective risk management policy and program that can increase your business’ chances of success and decrease the possibility of failure.
Risk management process
Types of risks your business faces
Strategic and compliance risks
Financial and operational risks
How to assess the risks
Use preventive measures for business continuity
How to manage risk
Choosing the right insurance to protect you against losses
Risk management process
Businesses face a large number of risks, which is why risk management should be a central part of the strategic management of any business. Risk management helps you identify and address the risks facing your business and, in doing so, increases the likelihood of successfully achieving your business objectives.
A risk management process involves:
the methodical identification of the risks surrounding your company’s activities
the assessment of the probability of an event occurring
understanding how to respond to these events
putting systems in place to deal with the consequences
monitoring the effectiveness of your risk management approaches and controls
Accordingly, the risk management process:
improves decision making, planning and prioritization
helps you allocate capital and resources more efficiently
allows you to anticipate what could go wrong, minimize the number of fires you will have to put out or, in the worst case, prevent disaster or serious financial loss
significantly improves the likelihood that you will deliver your business plan on time and on budget
Risk management becomes even more important if your business decides to try something new, such as launching a new product or entering new markets. Competitors following you into these markets, or technological breakthroughs making your product redundant, are two risks you might want to consider in such cases.
Types of risks your business faces
The main risk categories to consider are:
strategic, for example a competitor entering the market
related to compliance, for example the introduction of a new health and safety law
financial, such as non-payment from a customer or increased interest charges on a business loan
operational, for example, the failure or theft of key equipment
These categories are not rigid and some parts of your business may fall into more than one category. Data protection risks, for example, could be considered when reviewing your operations or corporate compliance.
Other risks include:
environmental risks, including natural disasters
employee risk management, such as maintaining sufficient numbers of staff and replacements, employee safety and up-to-date skills
political and economic instability in any foreign market to which you export goods
health and safety risks
Strategic and compliance risks
Strategic risks are the risks associated with operating within a particular industry.
They include risks arising from:
merger and acquisition activity
change in customers or in demand
changes in the industry
research and development
For example, you might consider the strategic risks of a US company buying one of your Canadian competitors. This could give the US company a distribution division in Canada. You might want to consider:
if there is any American company with the money and/or sufficient