The 6 Essential Elements of Your Next Business Risk Assessment

The 6 Essential Elements of Your Next Business Risk Assessment

As the adage goes, “An ounce of prevention is worth a pound of cure.” Unfortunately, far too many people fail to embrace this truth and never prepare for the unknown. 

We’ve discovered 6 essential elements for conducting a business risk assessment that protects your company. Being prepared will always give your business the upper hand over your competitors — especially when something occurs that no one expects.

1. Identify the Risks 

You can’t prepare for risks if you don’t know what they are. The specific situations you might face will be unique to your business, but you can group the general risks into two buckets: internal and external.

Internal

  • Compliance – The safety of your physical building and operational processes
  • Financial – Your internal accounting and fiscal health
  • Human – The choices made by your employees
  • Technological – The software and hardware supporting your work

External

  • Economic – The external market forces acting upon you
  • Government – Any local, state, national, and international laws 
  • Location – The impact of weather, climate, traffic, and more 
  • Competition – The influence of similar businesses on your activity

As you can assume, you can have more control over internal risks than external ones, but you still must account for both in any business impact analysis you conduct.

2. Evaluate and Rank the Potential of the Risks 

Welcome to the most technical, data-intensive, and context-specific component of the assessment process. Only you and your key stakeholders can determine the critical business risks that deserve the most attention and planning. You must account for the following possible impacts with each risk:

  • People
  • Physical infrastructure
  • Technology stack
  • Clients and customers
  • Your clients’ customers
  • Debt-to-income ratio
  • Financials
  • Investors

Additionally, cost-benefit analysis would be helpful as it can shed light on the severity of potential risks on a spectrum. You must judge the level of attention and effort each group receives depending upon the situation across various scenarios. It’s tedious but essential to the long-term health of your business.

3. Develop Your Risk Document

Once your evaluation and ranking are complete, you should then combine both your qualitative and quantitative data into a single view. We recommend the following setup:

  • Arrange by risk type
  • Order risks from most to least likely
  • Prepare a response to each risk
  • Include team members if needed

These risk assessments should serve as the basis for all future actions, reactions, and decisions your company takes whenever faced with dangerous circumstances.

4. Determine the Controls for Risks

Since a reliable recovery strategy should focus on prevention, it’s time for the next step: mitigating the likelihood of each risk happening. You have more significant influence over operational risks like slippery rugs and steep stairs than external scenarios like natural disasters and stock market collapses. Nevertheless, your senior leadership should develop detailed actions that help your business avoid the risks they have identified.

5. Assign Risk Managers

After you determine the most effective means of reducing risks, you should designate the key employees responsible for all risk management processes. We recommend that such persons be senior managers and above, as they will need to ensure compliance with your risk directives. It also makes sense for that person to be in charge of the area more relevant to their job duties. The marketing manager shouldn’t take care of credit cards and other aspects of line-item budgeting. 

6. Review Your Risks 

Even the most prudent business plan often omits this step. Regardless of whether your business experienced zero risk-related events in the last year, you should revisit your risk document annually. This process should include measures such as:

  • Assess the events of the previous year
  • Determine if any risks have increased
  • Determine if any risks have decreased
  • Evaluate the controls for all risks
  • Assign new risk managers as needed

In short, planning one time won’t help you in the long term if you don’t make the necessary updates and account for any changes to your circumstances.

Prepare for the Future with a Business Risk Assessment

No one wants to face any of the risks you entered into your risk document, but your company will be better served by preparing for the worst-case scenario. You need excellent management strategies that prevent risk and ensure your business can swiftly recover if something happens.

If you’re ready to engage in effective business continuity planning, talk to EAG Services today! Our experts stand prepared to counsel your leadership so they can develop risk assessment tools that will protect your most essential resources.