Risk Management in Business

April 23, 2009 by  Filed under: Management 

In everything that we do there is always a certain amount of risk. An individual cannot achieve his goals without risking something. The same is true in business. No matter what the nature of the business there is always risk. We cannot totally eliminate risk in business but we can control it. This is what we term as risk management.

Risk management plays a crucial role in business and knowing how to calculate and handle these risks can keep your business safe and healthy. Having your own business can be a lot better and beneficial than being someone else’s employee but it does carry some risks. Starting your own business does not assure you that your business will succeed, let alone grow. So how do you manage your risk? You can start by educating yourself about the business that you want to venture into. Having a clear understanding and knowledge of how to properly start the business and how to manage it properly is a good place to start. Next, you would want to assess your risk should you go into business. You have to identify the potential problems that you might encounter once your business is operational already. By doing so you will be able to prepare a contingency plan for it long before it happens. You’ll need to identify the different government agencies and bureaus that are directly concerned with your business. You would also want to learn about business law, especially those which directly affect your business. The more you know about the laws concerning your venture the better off you will be. The more potential problems you identify and the more contingency plans you have the lower the risk.

How do you calculate risk? There’s no specific formula for calculating risk in business. The same means does not assure you of the same outcome all the time. Every time you start a business even if you’ve had the same type of business before does not assure you that you will be facing the exact same problems as you did in your previous business. Every venture will present you a unique set of problems plus the problems you’ve encountered before. Calculating your risk is like an educated estimate. You try to identify your problems and you prepare your contingency plans; for every potential problem you identify you would like to have at least more than one solution. It’s always better to have a plan B when plan A fails. Think of it as an emergency parachute when your main chute fails. Your potential problems will range from finances, to personnel, to marketing to operations and more. These are some of the factors that comprise your risk as you go into business.

In general terms, the smaller the capital, the smaller the risk and the larger the capital, the higher the risk; your risk factor grows relative to your capitalization. On the other hand however, high risk ventures also mean high returns should the venture turn out well. It is essential that you conduct a proper feasibility study before you start project development. A feasibility study is a good way to assess your risk as well as find out if your idea is feasible. So you start with an idea, you conduct a feasibility study and then you assess your risk. Now that you’ve assessed your risk, you can start to manage it.

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