Evaluating Risk in Your Business
Risk management has become one of the corporate mistakes made by Small and Medium Enterprises (SMEs). It comes with a heavy cost at the end of the day. The fact is that there is a misconception about the application of risk management. Large organizations spend a lot of time and money on improving their management, whereas SMEs require more risk management as best practice.
The truth is that larger business enterprises are capable of absorbing consequences of exposure due to poor compliance with best practices. SMEs cannot withstand such exposures to risk, even minor theft, fraud or financial loss can destroy a small or medium business. Apart from this, another truth is that failure to ensure compliance with risk management increases chances running out of business.
The only way to manage a business is when you understand the basics of risk management. Risk must be defined to ensure compliance with best practices to avoid a negative impact on the business. The standard definition of risk is as an occurrence that leads to losses, most importantly monetary losses. It is important to understand that risk can be industry specific, and they vary. However, some common risks include:
- Operational Risk Management: Operational risk is associated with execution of business functions. Some typical examples of aspects where operational management come in include risk related to environment, fraud, and legal issues. In other words, operational risk means failed or inadequate internal processes and systems. Operational risk is a broader category under risk management. This is why operational risk management is treated as a separate aspect of business management.
- Credit Risk Management: When credit risk management fails, there are bad debts. It is a sign that the company’s capital reserves have been exhausted. Failed credit management leads to bad debts and lack of cash flow. Therefore, in order to succeed in business, SMEs must ensure compliance with credit risk management.
- Medical Risk Management: There is an ongoing debate on whether employees should be entitled to medical aid. Without medical cover, employees only get healthcare when they fall sick. This leads to longer time off from work. The consequences of this are faced by SMEs more than larger businesses.
- Reputation Risk Management: Making a good reputation takes years of hard work and dedication. Within five minutes of failed compliance and risk management a good reputation can be lost. The most common reason for loss of reputation is poor customer relations. Compliance with Consumer Protection Act is a major requirement for reputation risk management.
- IT Risk Management: Working without IT is impossible nowadays. Ensuring compliance with IT risk management is very important.
- Travel Risk Management: For those businesses where travelling is a requirement for employees, implementation of risk management is very important. Protecting your employees who travel against kidnapping, or other forms of assaults is a major requirement for businesses.
- Compliance Risk: When employees fail to comply with regulations of specific organizations, compliance risk threatens the success of the organization. Ensuring compliance with best practice is therefore a basic requirement in both large and small business enterprises.
Evaluating risk in your business requires an assessment of all these subcategories if risk management.