A significant part of how successful you are as a business leader lies in the way you manage risk. To coin a phrase, business is risky business – especially in the uncertain financial climate after the 2007 crash. This has always been the case, however, and companies have always had to find ways to manage their business risks. These risks might be anything from investing in a new product, taking on new employees, applying or extending the credit line or taking another company to court over a legal matter. Risk management even has its own ISO standard – ISO 31000:2009 – ‘to provide principles and generic guidelines on risk management’. This includes the definition: ‘the effect of uncertainty on objectives’, both positive and negative.

According to Investopedia, risk management is: “The process of identification, analysis and either acceptance or mitigation of uncertainty in investment decision-making. Essentially, risk management occurs anytime an investor or fund manager analyzes and attempts to quantify the potential for losses in an investment and then takes the appropriate action (or inaction) given their investment objectives and risk tolerance. Inadequate risk management can result in severe consequences for companies as well as individuals. For example, the recession that began in 2008 was largely caused by the loose credit risk management of financial firms.’ Within a company itself, risks are often assessed by top management in whichever division the risk is related to, e.g. HR, Marketing, Finance, etc.

“The CEO of the organization has to ensure that he or she not only focuses on the figures or the sales of the company, but at the same time ensures that all the departments are linked to the overall goal of the organization,” Jitendra Gianchandani, managing partner, Jitendra Consulting, said.

“If the organization is labor-intensive (retail, restaurant or service) the CEO has to ensure that the manpower required is available and trained to cope with the business at hand. Updating knowledge and people is also a big task and has to be taken care of by the CEO of the company,” he said.

Generally, there are two steps to take in risk management: first, find out what kind of risks there are in an investment (not necessarily financial); then, to handle the risk, you identify the best way forward to achieve the objectives of the investment.

While not all risk can destroy a business, some can damage a company very badly. This is when risk management steps in – to prevent the fallout from risks taken (when the result wasn’t as expected).

There are a number of different risk areas for companies – whatever size they are. These are generally segmented into physical risk, location risk, human/personnel risk, and technology risk. Physical risks are usually managed by the HR departments of companies, and include basic information such as the location of all fire exits and fire alarms. First-aid knowledge and information about hazardous materials/ spills also come under this umbrella. Location risks include natural disasters – storms, strong wind and hurricanes, earthquakes and other environmental risks. Human risks include illness, theft, embezzlement and other crimes that can occur in the workplace. Lastly, technology risks include power cuts, the threat of viruses and/ or hacking, and the loss of important/back-up data.

Above all, companies should insure against as many business risks they can. If you’ve got a building or any kind of physical space for your business, insurance against fire is a prerogative. Other kinds of aspects to insure against include embezzlement and fraud – particularly if you have employees handling large amounts of money. Even if you’re happy with your employees and they’ve been working for you for years without any problems, insuring against their errors is vital.

“SMEs should nurture their employees and also watch its finance and legal matters closely [for errors]. A budget should be set for each department so they can measure their performance and also to evaluate the market and any market changes,” Gianchandani advised.

Types of Business Risk:

• Financial
• HR/employee or personnel
• Market risks
• Physical
• Credit & investment
• Legal
• Technology
• Location, e.g. natural disasters