Running any business comes with its share of risks. But if you fail to prepare for that risk by creating a risk management plan, you’re leaving your company vulnerable to factors that can create a negative impact both immediately and in the long term.
“Failure to identify, assess and manage risk can have an adverse impact on profitability, competitiveness, quality, brand value, reputation of your firm and morale of your employees,” says John P. Azpell, an account executive with ECBM Insurance Brokers and Consultants.
Smart Business spoke with Azpell about how companies can create personalized plans to identify, assess and manage their risks.
What factors go into a comprehensive risk assessment?
Risk assessment is the initial step in the risk management process, which includes the following components: Identify the risk and assess its possible impact on your organization.
While the term ‘risk management’ is most commonly related to the insurance world, it actually has much more far-reaching implications for an organization. Executives are usually concerned with typical insurance-related items, such as potential risk to an organization’s buildings and property, injuries to employees or liability issues related to products or services.
But risks can also come from the current uncertainty in the financial markets, issues with potential failure or underperformance of a product, the impact a competitor may have on your business or the potential vulnerability of your computer system and the competitive, financial and client information contained within that system.
Once the risk is identified, the next step is the actual analysis. Factors included in such a review are the potential severity of the risk, the probability of the risk occurring and the potential frequency at which it may occur.
What are the dangers of remaining exposed to these risks?
Risk is inherent in business. The danger lies in not recognizing the risks or failing to take steps to manage or mitigate the risk. Failure to identify, assess and manage risk can hurt profitability, competitiveness, quality, brand value, reputation of your firm and morale of your employees.
In addition, costs associated with dealing with an unanticipated risk may create a large expense that was not in the budget, which could result in an inability to fund planned growth, a key acquisition or equipment upgrade.