How do You Identify the Risks
Business Risks and their Identification
There are always certain risks which can potentially hinder the enterprise, program, or investment from achieving its goals. Risk identification is the process of determining such risks — it also includes communicating and documenting the issue. The primary goal of risk identification is early as well as continuous detection of events, when left to occur, may produce negative effects on a business to attain the target performance or expected outcome. Risks may occur from within the business or from other external origin.
Why Risk Identification is Considered Significant
For running a successful organization, one of the primary concerns is the ability to identify risks. Looking closely at the business and identifying potential risks is the first step involved in risk management. Without understanding the scope of all types of possible risks, it will be impossible to build a realistic and economical strategy to handle them. Creating a database of all relevant risks involved in your business is the goal of risk management.
Types of Risks Associated with Business
Risks have been categorized in different ways in different places. In simple business terms, Risk is defined as the chance of something occurring in business which will have an effect on its goals. There are the following common types of risks that need attention for running a successful business:
Financial Risks
Internal risks such as customers defaulting, cash flow deficiency, assets depreciation, and external risks such as fluctuation in market, interest rate change or prices of commodities
Legal Risks
Violation of contracts, non-compliance with rules and regulations such as safety standards fall under this category
Environmental and Operational Risks
Occur under a domain of human, environmental, and procedural impacts such as retirement or illness of important staff, natural calamities, breakdown of equipment, and software / hardware failure
Strategic Risks
Relating to business strategies
Privacy Risks
Breach in privacy such as meddling with information
How to Identify Risks Efficiently
There are ways of identifying risks that are specific to each business. A few have been listed below:
- A complete and thorough scrutiny of your business plan
- Deliberation with staff members to gather as many perspectives as possible
- In depth analysis of all conceivable future events as well as their results — scenario analysis
- Individual break up and analysis of work procedures with the help of flow charts, inspections, and checklists (systems analysis)
- Ask how, where, when, and why risks are likely to occur in your line of business
- Query whether the risks are external or internal
- Check who would be affected or involved if this risk does occur
Identifying the potential threats and risks in business forms a major factor in the life of business owners. When once you are able to identify the potential risks, you become eligible to look for ways to manage them.