Risk events can come in many different shapes and sizes, but regardless of your profession, risk management is something that can give you the edge over potentially damaging risks. For Small Businesses, there are several reasons why Enterprise Risk Management should be implemented. These reasons range from legal obligations to budgetary requirements and below, we highlight four of the foremost reasons for introducing Enterprise Risk Management to your Business.
In large companies, market risk covers the risk that the value of the company’s assets will decrease due to a change in the value of external factors. Changes in interest rates, foreign exchange rates and commodity prices can all negatively impact on a company’s assets. Similarly, changing economic and environmental factors can negatively impact on the productivity of small businesses.
By monitoring market influences and assessing other external influences that could impinge on the company’s market presence, you can protect against market risks and ensure the productivity of the business. For small businesses, accounting for market risks can help ensure projected growth patterns and prosperity. By formulating an enterprise risk management plan, employers can effectively address and mitigate unfavourable market forces.
Operational risk represents the risk of loss from failed internal processes. These risks can arise out of everything from poor or inadequate employee practices to hardware malfunction. While operational risk is relevant to all categories of profession, many small businesses often overlook or underestimate the possibility of operational risk-related events damaging their business. Operational risks such as internal and external fraud, employment practices, business continuity processes can all negatively affect the overall business process of a small enterprise.
Through in-depth analysis, the identification, measurement, monitoring and managing of operational risk, small businesses can ensure the security and efficiency of the operating process. This involves having well-defined and organized roles, segregating duties and responsibilities, and implementing management review mechanisms that will allow employers to account for operational risks and ensure they don’t threaten the business.
Reputation is one of a business’ most important assets, particularly if they operate globally. That said, reputation is everything for small enterprises and start-ups as it represents the extent to which the company is meeting the expectations of its stakeholders, and this can often prove a determining factor in whether or not a small business can take off. While reputation is one of the most important assets of the business, reputational risks are indelibly difficult to protect against. Factors such as negative publicity, whether accurate or not, can compromise the business’ reputation capital while marketing channels such as social media can carry a lot of risk potential.
By defining how you want your business to be perceived, you can begin to clearly identify what risks could negatively impact on the company’s public image. Outlining an enterprise risk management strategy can greatly help a small business to actively monitor the effects of operational incidents on reputation capital and the public perception of the business. This involves an assessment of relationships with consumers, partners and the media as well as assessing the functionality of the business in terms of commitment and quality processes.
Emerging risk accounts for any new risk that is in the process of being quantified and understood. Emerging risks have the potential to substantially impact on a business or insurance policy and significantly damage the company’s reputation, reach and overall process. Emerging risks can infiltrate any part of your business or personal life and have a huge impact, and unfortunately, as there tends not to be any resolute method of predicting and protecting against emerging risks, they are considered some of the most potentially damaging risks that businesses face.
Typical emerging risks include Cyber Risks and Social Media Risks, both of which can be reduced greatly through a comprehensive risk management plan, but other emerging risks such as changing economic factors and wholly unpredictable risks like natural disasters can have devastating consequences for unprepared businesses.
Enterprise Risk Management is all about predicting, preparing for and protecting against the occurrence of a risk event. Each of the risks discussed in this post carry the potential to inflict serious damage on a company’s reputation and overall business process. However, if a small business incorporates each of the aforementioned risks into their overall Enterprise Risk Management plan, they can significantly protect themselves against the possibility of a risk event occurring and devastating the business.
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Lonnie Meadows is a risk advisor for NewFirst Insurors. Lonnie specializes in developing commercial risk management plans for small to mid-sized businesses and focuses on leadership and management relationships to improve his clients’ overall operations.