Whether you have a successful business or a struggling one, risk management is essential. When you learn about the potential risks within your business and industry, as well as the risks that you have already faced, you can take a more proactive approach.
If you are constantly having to react and put out fires in your business, then you are going to quickly head down the route of failure.
Risk management can help you to protect your reputation, your financials, your assets, your supply chain, your customer base and more. A product-based business holds a lot of risk, from supplier failure and product defects to safety issues. You cannot get rid of all risks, but you can minimize risks or their impact. Without this approach, you may destroy the trust customers have in you or halt operations entirely.
Investing in risk management can go a long way to your success and profitability. It takes time and effort, as there is a cycle of assessing, identifying and mitigating threats throughout the lifecycle of your products, as well as the wider business.
To help you on your journey, here are some top tips.
#1 Risk identification
Take time to actively seek out threats that are a potential threat to your product-based business. Analyse data, speak to employees, engage with stakeholders and collect ideas as a team. Once you have done your first risk identification, you can begin to build a process that enables you to do this regularly.
Common risks include:
- Value of the product through the customer’s eyes
- Customers cannot use the product
- Feasibility of the product internally with existing resources
- Financial or legal constraints
- Uncommon or taboo product
- Supply chain disruptions
- Equipment or IT failure
#2 Assess the risks
Once risks have been clearly identified, the next step is to assess their potential impact and likelihood. Not all risks carry the same weight, so it would be ineffective to try to jump in and mitigate them all. You need to learn how to prioritize the risks by asking how likely it is to be happy, and how damaging it would be if it occurred. A compliance breach that could halt your work is very different to a minor supplier delay. Regulatory and legal risks benefit from regular reviews, policies and expert advice, rather than last-minute fixes.
#3 Proactive steps
With your priorities all set, you can move into proactive risk mitigation. This is all about reducing exposure before problems escalate. For operational risks, this might mean holding safety stock, documenting processes and diversifying suppliers. If you operate in a generally higher-risk sector, mitigation becomes even more crucial. If your industry is prone to chargebacks, fraud or regulatory issues, then your foundational infrastructure must be solid. Look into high risk merchant services, as well as insurance policies.
Risks cannot always be completely eliminated, but they can be mitigated. You want to ensure that you are aware of what is within your control, and prepare yourself so you can be adaptable and resilient.
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