Effective Risk Management Strategies for SMEs

Written for Fempreneurs Africa Magazine

 

It is more important now than ever for enterprises to be aware of the risks that their businesses face and how they can mitigate these risks as they plan their businesses. Risk is defined as the possibility of your business suffering a loss due to unexpected events. We will discuss 7 types of risks that your business may face, and how you can deal with the risk as you plan for your business.

 

  1. Financial Risk

The risk of your business running out of sufficient cashflow to continue operations is real, especially in this covid era. Many customers themselves are facing challenges of reduced income, which will affect their ability to buy from your business and sustain your operations.

 

  1. Supply Chain Interruption Risk

This risk became disturbingly real for many companies when China went into lockdown at the outbreak of Covid-19 two years ago. We are still feeling the effects as many national borders are closed, making movement of goods between countries difficult.

 

  1. Reputational Risk

This is the risk that your brand will develop a bad reputation. The reputation of the business owner is usually interlinked with the reputation of the brand. It’s easy to build up a bad reputation in business in this social media era where communication can travel around the globe in a few moments.

 

  1. IT Risk

This is the risk that your IT systems may fail and you lose data or business continuity. It also includes the risk of cyber attacks by hackers. Many SMEs are at high risk here as they do not have full time IT managers for their systems.

 

  1. Compliance Risk

There are some legislative issues that every business needs to be aware of and ensure that it complies with them. These can be to do with licensing and permits. When caught lacking in these issues by compliance authorities, the impact on your business  can be catastrophic.

 

  1. Operational Risk

These are the risks that come naturally with the business, like fraud, environmental damage, fire etc. They are associated with the normal day to day processes of the business such as internal processes, people and systems.

 

  1. Credit Risk

This is the risk that the customers you have extended credit to will fail to pay you on time or at all.

 

  1. Travel Risk

This involves the risk of losing employees or product during transportation from one point to another, or while visiting a foreign land.

 

  1. Medical Risk

The risk of the business owner or its employees falling sick and needing time off from work for recuperation.

 

Risk management is the process of identifying the risks to which your business is exposed and developing strategies for reducing the impact of the risk on your business. It’s important to understand that the objective of risk management is to ensure that risks are consciously taken with a complete knowledge and clear understanding of the consequences so that appropriate responses can be taken.

 

The four risk management strategies can be described as follows: You can choose to (1) transfer risks by taking out insurance against the risk, you can (2) accept the risk and do nothing about it, you could (3) avoid the risks by implementing preventative strategies and you can also (4) reduce the impact or likelihood of a risk occurring by constant monitoring so as to arrest the loss before it becomes too big and also by having savings or spares. So as you do your risk management planning, decide which of these 4 strategies of risk management you will employ for each risk.

 

 

Comments

  1. Thank you very educative

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