Startup Risk Management Processes To Implement
The idea of becoming your own boss is inviting, and it's a dream that many have. You've got this brilliant idea and have decided to turn it into a business. However, this in itself is an issue as not every problem solved can turn into a viable business.
Over 90% of startups often fail due to unforeseen circumstances. According to a CB Insights report, no market need was ranked as the top reason why startups fail. This is avoidable if you conduct thorough market research to help you identify a gap in the market.
Starting a business is easy, but succeeding is another thing altogether. Being in business is a gamble, but you can mitigate the risks involved if you have a sound risk management strategy.
What Is Risk Management?
Risk management is the art of thinking about your business's future, what could go wrong, and how to mitigate the risks. A risk management plan helps your business prepare for the unexpected and protect your business.
Risk management process
When starting a business, you follow a set process as it makes everything manageable. The same principle applies to risk management. You'll need to follow these steps:
1. Identify The Risk
You can't solve a problem if you don't know the problem; thus, the first step should be to identify the risks involved. You can learn from other businesses in the same industry as yours. What risks have they faced since they started? What risks do you anticipate will hinder your progress?
Note all the risks you're likely to face, even those you think will not affect your business. Trust your intuition and learn from the experiences of others. Don't be too confident thinking that your business can withstand the risks simply because you have a better product and a ready market.
Don't limit your focus to the traditional risks, thus leaving your business vulnerable to other types of risks. You need to have a broader view of risks, think about the risks that could affect your launch and survival in the market.
2. Analyze The Risks
Now that you have a list of risks that might affect your business, it's time to figure out how these risks will affect your business. You'll begin by categorizing the risks into the five main categories; hazard risks, strategic risks, operational risks, compliance risks, and financial risks.
Having a list of risks isn't useful unless you have categorized and listed them in terms of priority. Some risks are minor and will barely affect your business, while others can lead to bankruptcy. You want to focus your resources on mitigating the latter.
This is why companies are prioritizing strategic risks, especially those in the technology industry. If a company falls behind in innovation, it finds it harder to recover as the companies with innovative products tend to disrupt the market.
When prioritizing risk, don't focus too much on traditional approaches as they are more interested in protecting value as opposed to creating it.
4. Respond To The Risks
Since you know the risks to prioritize, the next step is to respond. You have to plan how to respond to each of the individual risks. You’ll need to allocate resources to implement your plans to manage the risks.
Start by assigning teams to oversee the risks. Those assigned to oversee will update you on the severity of the incoming risks and the best approaches to manage them. There are four approaches that you can implement depending on the severity of the risks.
You can ignore the risks, especially if the risks will have no impact on your business. If the risks are too costly to manage, you might want to consider risk avoidance or risk transfer. You can also consider risk mitigation if you have the resources to handle the risks without affecting your business.
5. Monitor The Results
This is why you need to assign the risks to specific teams as they’ll monitor how your risk management strategies are fairing. The teams will update you on progress and keep an eye on any additional risks that arise.
Ensure that information flows freely from all sides to ensure that everyone working on the project is updated.
Wrapping It Up
Managing risk has always been part of creating and growing a successful company. However, today's world of connectivity presents a risk-filled work environment that you'll have to navigate. Your startup will face so many challenges that could crush it, considering that you might not have the resources needed to manage them all. This is why we recommend that you follow the risk management process detailed below and prioritize.