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Risk Management for Business

What is Risk? Either it is an encouraging factor or the cost of doing business. Risk is the commonwealth you get with every new project. Risk is the problem, only when you have no clue about managing it. If you want to pursue something new and become a successful business owner, do not get afraid to take risks. The risk management process can look different for every business and situation. With a better risk management strategy, you can decide on your own- call it a problem or an opportunity that could increase the business’s ability. 

The traditional risk management concept could not help today’s modern organizations. The risks modern organizations faces are more complex and are accelerated by the rapid pace of globalization. 

To manage the risks for your startups- You should go through the step-by-step process. It is the process of identifying, assessing, and controlling threats to your company’s security.

Identifying

Identifying the risk is the 1st and most important aspect to manage your business’s risk. What is the risk which can bother you in the coming future? You have to do your research because risk can differ from company to company and vary by its nature. Analyze the Risk of your Business.

Risk can be: 

  •  Physical (e.g., IT security and privacy, supply chain, employment issues, natural disasters).
  • Technological issues (e.g., technical innovations)
  • Legal liabilities (e.g., ethics, regulatory, international trade, privacy)
  • Strategic management errors (e.g., reputation, customer relations
  • Financial uncertainties (e.g., market, tax, credit)

Assessing

After the identification of the risk, you can go through assessing. Prioritize and categorize the risks based on business objectives. it’s helpful to categorize them when developing a risk management strategy.

  •  Internal Risk:

Internal risks are caused by your employees, technology, actual physical risks inside the building, and more. It can occur because of the poor system, poor performance by the employees, and lack of internal control system which can lead to accidents, and fraud and negatively affect the achievements of the company. 

  • External risks:

External risks include the economy, natural disasters, politics, Legal changes, and more. Every organization faces the risk of unexpected, harmful events that can cost it money or cause it to shut down. (e.g., The coronavirus pandemic, earthquake). These risks are the type that could not be controlled by the manager. External risks also include economic, legal, and political risks which are processed by the external party. This type of risk causes problems and can bother you in the future. If it is caused by internal management, it can be cured by changing the policy and strategy of your business. If it is an External risk you can only minimize it with your future-oriented capability. In simple terms, we can say that the internal risks are controllable and the external risk can be manageable.

Controlling

Controlling the risks is the last step of risk management and the first step to enhancing the reputation of your company. Control the risks according to their category. 

 How to control Internal Risk:

  • Improve personal management by boosting employee morale through effective compensation and empowerment. A motivated and happy employee tends to be more productive.
  • Do not stop your research on new technology and apply it to your work. Research and development are components to reduce internal risks. It involves keeping pace with new technologies.
  • Always replace and update faulty machinery or system.
  • Investing in long-term assets (investments, patents, copyright, franchises, goodwill, trademarks, and trade names, as well as software) can reduce the risk of falling behind the competition and losing market share.

How to Control External Risk: 

  • Companies can respond to economic risks by cutting costs or diversifying their client base so that revenue is not solely reliant on one segment or geographic region.
  • Companies often have insurance to help cover some of the financial losses as a result of natural disasters. However, the insurance funds might not be enough to cover the loss of revenue due to being shut down or at a reduced capacity.
  •  Political risk is comprised of changes in the political environment or governmental policy that relate to financial affairs. Changes in import and export laws, tariffs taxes, and other regulations may affect a business negatively.
  • Making access to the credit markets and establishing finance in the form of loans, credit lines, or bonds before the risks take place, can help companies to stay financially solid during tough times. 
  •  External risks are also the risks that can happen suddenly from unknowns. For that, you have to identify as many risks as possible. Reserve the contingency to cover such emergency cases. 
  •  External risks cannot be foreseen with accuracy, it is difficult for a company to reduce these risks. Some types of credit insurance can protect a company against political events in other countries, such as war, strikes, confiscation, trade embargoes, and changes in import-export regulation.

To secure the company’s finance and reputation risk identification and management are the most important factors. It also can keep your company, the employees, and your customers safe. Companies have to accept risk and understand that some risks are simply part of your business.

Also, Read How to Register a Company in Nepal

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About the author

Shraddha Pant

Shraddha Pant is a development researcher and writer who graduated in English literature. She has completed her LLB from Nepal Law Campus (Tribhuvan University). As a student of legislative law, rural development, and sociology she is keen on working in the development sector and is now focused on working for capacity building of grassroots NGOs that work as change agents and development of women.

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Ria sachdev
Ria sachdev
2 years ago

thank you for explaining risk management in such an easy manner.

Nistha pant
Nistha pant
2 years ago

So helpful 🙏
Keep it up 👍

Samata
Samata
2 years ago

Very informative Shraddha. Keep up your good work. Will be waiting for new topics.

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Denil
Denil
1 year ago

Am always waiting for your new article. Keep it up dear

Samar Sharma
Samar Sharma
1 year ago

Nicely explained

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[…] Risk Management for Business […]

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[…] Risk Management for Business […]

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Amar Gaire
Amar Gaire
1 year ago

Very helpful. Thanks.

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