Taking risks is an inevitable element of doing business for companies pursuing innovation and growth. Making sure that those risks are calculated and manageable though is essential so that companies can reap the rewards of taking risks while protecting themselves from unwanted outcomes. Mastering risk management is vital to achieving this balance.
The foundation of effective risk management is understanding how and where it can arise. Risks will vary depending on the industries and markets business operate in and managers therefore need to discover the kinds of risks they may face. Are they financial, reputational, or affecting security? When and how might they be caused? These questions will act as the bedrock of your risk management framework.
The most critical risks that small businesses face are typically financial. Investments, cash flow challenges, and even the broader macro-economic environment will affect business. Fraud is another huge potential danger. This article will explore how to build an effective risk management framework that can help strike the balance between taking calculated risks and mitigating the fallout that small businesses may encounter.
Risk management is the identification and assessment of any event that may negatively affect a business, and their mitigation or prevention.
This can be separated into two coexisting paths – proactive and reactive – both of which must be explored to ensure an effective risk management framework.
Proactive risk management:
Reactive risk management:
In simple terms, a robust risk management framework benefits a small business by protecting it from potential difficulties the company faces. A well-structured framework enables managers and employees to understand the potential risks in their operations and guide them towards better decision-making that mitigates potential threats.
An effective and easy to use framework can help to reduce financial losses due to a lessened risk of scams, fraud, and security attacks and other risk. Allied with good training, such as in recognizing e-mail phishing scams, will give employees a better chance of staying safe.
It is paramount to a business’s success to work on an actionable framework. For the best chance of success , these specific risk management framework steps should be followed:
The process of compiling a risk management strategy is fully customizable to the needs of a particular business. The business owner should therefore focus on customizing risk management to suit both their size and their individual needs. This will include the following considerations:
Fortunately, there are a wealth of risk management tools that can be used by small businesses to simplify the process. As technology continues to evolve, guesswork is not required when creating and implementing a risk management framework. Tools and technologies such as PayPal’s trusted risk intelligence with fraud detection affords business owners an arsenal with which to protect their capital.
For the greatest chance of success, businesses should seek to adopt proven best practices. These are tried and tested actions that will aid in keeping a business as safe as possible.
Business owners should implement the following:
Risk management is an essential component of enabling a business to reach its full potential while keeping it safe.
By using each step outlined above, a business owner can be confident that their business is in safer hands.
In partnership with three expert business owners, the PayPal Bootcamp includes practical checklists and a short video loaded with tips to help take your business to the next level.
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