Being an entrepreneur requires the ability to assess situations – either a business opportunity, market assessments, evaluate financials, among many other analysis.
There are several factors that ignites ones ability to comprehend whether or not pursuing an opportunity is both, time and financially worthy. Being able to analyze your company’s risk can allow your organization to have a holistic view of the risks it faces, which in turn allows you and your management team to better capitalize on opportunities.
Trying to run an organization without being able to assess or reduce a risk is like your first time getting into a driver’s seat and unable to to drive off because you have no sense of how to drive and the risks associated with driving.
Most times, it takes experience. Experiences can occur through trial and error or an association to a hell of a great mentor. These experiences allow you to learn the necessary skills to identify situations and mitigate your uncertainties.
Having failed on numerous attempts to start and run a business, I have learned that there are three main methods to mitigating risk at your startup.
First things first… To make things easy for you, I’ve created a risk assessment tool.
Add it to your arsenal of startup tools. This way, you’ll better understand the things that I will touch on next!
Categorize Associated Departments and Identify Your Risks
The first step is to identify the risk. Begin by having a notebook (a paper-style notebook) and pen. Going across the page, (try positioning the sheet in a landscape position) draw out your startup’s organizational structure by areas. If you already have one handy, then good for you! You are ahead of the game!! List the units/departments/wings/areas/etc. that are structured in your company. For example, you may have an Admin, Operations, Marketing and Sales, IT, and Customer Service departments. List these from left to right (or right to left) in a notebook page.
One you have listed all of your departments, you will move on to coordinating a risk identification session (RIS). I suggest you conduct this with the team leaders responsible for the specific department. For example, if you are focusing on risks associated with the Operations Department, you will run through the tasks with your Operations Executive, Director, and Manager(s).
During your RIS, and after categorizing your departments, you will write down relevant processes that pose a risk. This list may only have 3 per department (unusual), and may certainly reach hundreds. Be sure to effectively collaborate with your team in identifying these risks.
Also, become aware of potential risk that can harm your startup. In today’s technologically-driven world, we sometimes think of risks as something that may strictly be related to legal, manufacturing, or perhaps unpredictability with human resources. But you should keep in mind that risks can appear in any size and can come from any place or angle. The sooner you are able to identify a potential risk, it becomes nearly effortless to prepare ways of mitigating it.
Rate Risks On Impact and Probability
The second step is to reference the Risk Rating Key on your Assessment Matrix to rate the risks on impact and probability. To act on this step, you must go down your list of business processes (or delegate the task to your appropriate manager) and individually assign a number on the risk-impact scale and risk-probability scale. Please note that the rating key is designed starting at zero (0) and extends past ten (10+). Zero, related to no risk and anything above ten posing extreme risk.
Upon plugging in numbers on the impact and probability columns, you’ll notice the Risk Rating column automatically calculate the total risk rating. This is your bulls-eye. If the number on your Risk Rating column exceeds a total rating of two (2), begin drafting your prioritization list. Bare in mind that the higher the total risk rating becomes, you should expedite designing a risk mitigation plan for that specific department.
Create Risk Mitigation Plans For Each Department and Deploy The Plan to Your Designated Risk Leader
When designing your Risk Mitigation Plan, you must first determine who is the appropriate risk manager responsible for identifying and executing the plan. If you are an extremely small team, this step may involve the one or two people in the company, including you. For a multi-person organization, this person is the highest level authority, someone who’s knowledgeable and has a suitable amount of resources to implement the mitigation plan. He or she must be actively involved and proactive in detecting additional risks after the plan is in play.
The content of the plan varies highly on the business process. The most-standard design of your Risk Mitigation Plan should include the following:
- Purpose of the plan
- Risk Management Procedure
The tool that I have provided in this article covers the risk management procedure as an outline. Once the outline is completed, you can transfer the information into a document where you can fill in the details.
- Business Process
- e.g. “hire project manager for product x”
- Risk Identification
- Outline the Department and business process with your team and analyze to identify potential risks.
- Risk Analysis
- Risk rate of impact
- Risk rate of probability
- Total risk rating
- Risk Response Planning
When designing your risk response plan, you should list all related risk to the specific department in which you are creating the plan for.
- How to respond?
- Why to respond?
- When to respond?
- Risk Monitoring, Controlling, and Reporting
- Risk monitoring is vital to your mitigation efforts. It can benefit the performance of your startups programs. Simultaneously, risks that has made the cut to the mitigation process should be managed continuously as opposed to just before a program review.
- When reporting the results of your efforts, you and your team should often discuss and review the plan – while pivoting for improvements as needed. Reporting should become a part of your routine and should be discussed as a function during your management meetings.
Ask yourself, why is mitigating risks important for my company?
My answer to you: Would you rather lead your troops to battle walking on thin ice? Or… Would you lead your troops through solid ground? The choice is yours!