risk management

Risk management is basically a science used by professional business people and of course, entrepreneurs. Each new business is filled with all sorts of risks which can consume you and make you fail. With the risk management, you will simply avoid all potential issues and get better odds for succeeding.

What is risk management?

As we mentioned, risk management is a science, a more precise one actually. It allows you to calculate all the potential risks which may occur to you at any given moment. You should know that greater risks usually bring greater results. Some risks should be avoided at all cost, while some are worth it.

Risk management will also help you with determining the relation between the cost and the benefits of that particular risk. It is all about careful planning and developing your business strategy to move pass all risks as easy as possible.

operational risk management

Types of risks for entrepreneurs

There are several, common types of risk each entrepreneur will encounter. They are:

  1. Competitive risk
  2. Financial risk
  3. Employees risk
  4. Tech risk
  5. Legal risk

We should add that the first type of risk is commonly associated with the marketing risks as well. It means that a rival with a better marketing strategy usually has better odds, meaning that your business is at a risk.

Calculating the risk effect

Obviously, isn’t possible to foresee the future nor risk management will allow you something similar. In a matter of fact, this science ill help you calculate the probability of the risks and their severity, so you can adapt.

The first step starts will list all the risks your, particular noisiness may encounter. Try to categorize them according to the severity and the odds of them happening. Once completed, you will have to develop and calculate the mitigation costs. In other words, it means that you must prepare yourself and your business to deal when the risk occurs. Calculate the cost of solving the problem per each strategy you have been using.

When doing this type of analysis, it is advised to be as realistic as possible. If you are too optimistic, your risks won’t look real. If you are too conservative, your entire business will look like a simple mistake. Don’t forget to include the changes of the market and society. They are dynamic, so try to incorporate them into your analysis. Finding the average line may be tricky, due to constant changes. If you can find statistic data related to your business, use them!

Calculating the risk effect

The bottom line

Risk management is something that most entrepreneurs never use, so they fail within 5 years. In reality, almost 50% of them fail in the first 3-5 years! The technique will help you determine the risks your business may encounter and adapt so if or when they occur, you will be capable of defeating them. In addition, this science also allows you to categorize the risks and determine which ones should be taken and should be avoided at all cost.

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