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Risk management is the process of identifying and controlling risks that can harm a business or organisation. That means anything that could have downside impact whether it is sudden, such as an IT failure, burglary or bad debt, or a gradual cause such as fraud or an unacceptably high accident or injury rate. Sound risk control can deliver many business benefits, for example:

Legislative and contractual compliance

  • Reduced potential for costly and disruptive events
  • Reduced exposure to litigation
  • Increased efficiency and employee relations
  • Protected reputation
  • Lower insurance costs
  • Reduced risk to the Directors

Here are some areas where risk management can be beneficially applied:

  • Strategy
  • Financial management and control
  • IT security
  • Credit management
  • Product safety
  • Contingency planning
  • HR and Health & Safety

Each of these areas carries potential for financial loss, disruption to trade and harm to reputation leading to a weakened balance sheet and, at the worst, the rapid or gradual decline of the business. When the long term survival rate of businesses that suffer a critical IT failure, fire or weather catastrophe is estimated at only 20% there is clearly no mileage in operating weak risk management.

A sound risk management program calls for examination of exposures and the development of suitable controls which are likely to be a mixture of financial, procedural, contractual and practical measures in one or more of these areas:

Strategic
Businesses and organisations have choice about their products and services, the market sectors they trade in, the customers they supply and the locations they operate from. Each element will carry different risks and rewards, perhaps a high profit potential balanced against a high potential for disputes or bad debts. The naïve entrepreneur may venture unprepared into shark-infested waters. The skilled entrepreneur will know the pitfalls and welcome the challenge of succeeding in a hazardous commercial climate.

ActionPro Online has tools to help you examine your business fundamentals, carry out a series of SWOT analyses and even create a business plan.

Risk Control
This is the area where sound practical and procedural measures can reduce or eliminate risks that arise in finance and administration, use of technology, premises, people, operations and processes. Controls in these areas will make premises and operations safer and more secure, less prone to failure and safer for people to work in. Sound controls will reduce the potential for injury and HR disputes, protect reputation and steer organisations away from costly litigation.

ActionPro Online offers you management practice checks in most areas of operation, helping you to identify steps to improvement with scores and benchmarking information.

Risk Transfer
Financial exposure can be reduced by transferring risk to another party, the most common method being through insurance which is an excellent way of exchanging the potential cost of a crippling loss for an annual cost which can be budgeted for. Without insurance, most businesses could be ruined by a large legal compensation claim or by major damage to their buildings or plant and the associated business disruption.

Another transfer route is through the terms of contracts with customers, suppliers, landlords, tenants, contractors, lenders and investors. Every contract carries risk so it is important to to ensure that it is fairly distributed. Risks accepted under contract can survive for many years, exposing or protecting your business according to the effectiveness of your negotiations at the outset.

ActionPro Online will help you identify the issues and produce a report which you can use to negotiate best terms with your insurers.

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