Risk is a part of everyday life.  In business, Risk can be defined as the chance of something happening that will impact upon objectives.

There are many types of risk that will be encountered in business, and business owners choose to take risks every day. Some risks will have a minimal impact and are easily managed. Other risks can threaten the longevity of a business.

Many business owners rely on experience and intuition to manage risk. However, the more complex the business, the more important it is to identify risks that may prevent a business from realising its potential.

Understanding the principles and processes of effective risk management will help a business owner make the decisions necessary to ensure the best possible outcomes for the business.

What is risk management?

Risk management is the way that adverse effects are managed and potential opportunities realised.

Risk management involves:

• understanding what the risks are and the potential impacts
• minimising negative impacts
• identifying and harnessing activity that achieves the goals and objectives of the business.

While it is impossible to predict all negative outcomes for a business, risk management can help an owner to prepare for adverse events.  The limitations of risk management should be clearly recognized by the business owner and/or management team.

Who should use risk management?

Risk management is the responsibility of anyone operating a small business.

Accountability for management of risk cannot be outsourced or delegated.

Ultimately, the business owner will remain accountable for their risk decisions. So there should be a clear definition of the level of risk the business will accept and who makes that decision.

The business owner should oversee the management of all risks, particularly those that are significant.

Risk management should be integral to the ongoing management of a business and applied at all levels of a business.

There are two levels in the management of a small business:

• strategic – including identifying business requirements and the direction the business is taking
• operational  – daily running of the business including human resources, product/service delivery, stakeholder and financial management.

Risk management should be applied at both levels.