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Risk management involves identifying unfavourable events that could negatively affect your business if they happen to occur and developing strategies to overcome them.
Risk events that could potentially occur range from minor to serious and likely to unlikely. This range includes:
- Natural Disaster
- Key business staff leaving
- Key suppliers relocating or closing down, or a change in their credit policies
- Litigation
- Poor cash flow
- Family emergency
- A breakdown in occupational health and safety
- Bad debts
There are four key strategies that you can implement to cope with business risk:
- Risk Prevention: guards are put in place to stop or deter the risk from ever happening. This
may include putting guards on production equipment to prevent common workplace accidents or security locks and alarms on your business premises.
- Risk Avoidance: this involves developing strategies or not undertaking activities so that the business would not have to face the risk. An example is not entering into a contract to avoid facing a particular liability.
- Risk Retention: this is when you accept that a risk event may occur and taking no action to prevent, avoid or stop it from happening. You plan to deal with the problem when it actually occurs.
- Risk Transfer: in some cases you can transfer the risk of an event happening onto others, usually in the form of a contract. Examples include taking out insurance and selling your outstanding debtor accounts to a debt collection agency.
Conducting a risk analysis can also be a good risk reduction technique. This involves identifying a risk, determining its probability of occurring and developing strategies to overcome the risk, if any. There are a number of available worksheets and explanations available online to assist you in performing a risk analysis and development of a risk management plan.
For more information on risk management, visit:
- Smallbiz.nsw.gov.au - for an online booklet on risk management
- Australian Capital Territory Government - for a website dedicated to managing risk
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Operating Plan
