Understanding Risk Management

Managing business risk means managing the protection of your employees, customers, property, information and the environment. Formal business risk management is a policy or program that works to prevent all types of problems arising from risk and uncertainty.

Although the actual risk management processes may be different in small and large companies, the problems that arise as a result of poor risk management are the same. Unmanaged risk creates inadequate security and safety measures, which can cause financial loss, erode profits and create unnecessary liabilities. Inadequate risk management can even scare away venture capital funding and lower your bank rating status.

Benefits of Risk Management

Risk management programs require companies to carefully review their personnel, administrative, accounting, management, financial and insurance policies. Carefully evaluated risk management policies produce both tangible and intangible benefits:

• Good risk management can reduce business and liability insurance premiums (in the same way that a security system can reduce your homeowner´s insurance).
  
  
• Formal risk management programs are frequently accepted by major insurance underwriters for the purpose of lowering premiums.
  
  
• Risk management reduces your chances of being sued and increases your chances of prevailing in a lawsuit if you are taken to court.

Risk Management Strategies

All businesses are susceptible to losses from uncontrolled risk. Your risks will vary according to your business exposures and geographical location. Carrying enough of the right types of insurance is one way to protect your business against unforeseen events, including unauthorized trading, fraud and robbery.

You can also focus your company´s formal risk management efforts on operational risk exposures. Consider the following tips:

• Analyze ways to control any data-security risks, especially if your business transacts e-commerce.
  
  
• Develop management strategies to minimize the frequency and severity of these risks.
  
  
• Identify the operational risks in your everyday business activities and take steps to minimize them. For example, financial companies, restaurants and other businesses that handle large volumes of cash should be aware of the likelihood of crime and take steps to prevent operational loss.
  
  
• Prepare to respond quickly to an emergency or a disaster. Have a plan in place that ensures you can immediately continue to conduct business when disaster or emergency strikes.