It’s important to protect the business that you’ve worked hard to establish. Risk mitigation is an effective way to safeguard your business – it’s a hard and systematic look at various areas of your businesses to make them more resilient.
Running a small business is like spinning lots of plates at the same time – you’re attracting new clients, taking on employees, servicing existing customers and buying stock. It’s wonderful when everything is working but the UK 5-year survival rate for businesses born in 2010 and still active in 2015 was 41.4%. (Office for National Statistics). It’s a stark reminder to consider whether you have robust practices in place across the firm.
One of the most spectacular business failures was the case of the collapse of the UK merchant bank, Barings. Yet the huge losses of over £800m arose due to simple operational risk failures – while the media focused on the complex nature of financial trading, the truth was that the collapse could have been avoided by simple operational controls i.e. properly segregating the trading activities from the settlements and accounting function so that other staff could have spotted losses earlier.
This is where risk mitigation comes in…
Businesses may undertake risk management – i.e. the identification and assessment of possible risks – but it is also important to follow up by controlling the probability of their occurring in the first place, or at least minimising their impact. A simple risk mitigation strategy means choosing between 4 alternative courses of action for dealing with the identified risk:
- You either decide to avoid the risk i.e. abandon the high-risk task or project.
- You build risk control into your business processes.
- You regularly re-assess on-going risks and modify your risk mitigation controls.
- You transfer the risk to external parties – sub-contraction or insurance.
These are some of the key areas of risk in small businesses:
- Health & safety – the health and safety of employees, customers, and in some cases, beyond that, is one of the key areas of risk for any business. It is the duty of every employer to minimise the risk of injury and other threats and to comply with the appropriate legislation. One universal requirement is the need to be sure who’s on site in the case of an emergency or fire, for example by using fire roll call which is part of many time and attendance systems. The Health & Safety Executive provides advice on mitigating risks in this area and there is more advice here.
- Financial – your financial control processes should be effective and understood by your employees. For example different staff members should validate deliveries and invoices before payment. Signing-off timecards and edits should also be audited to prevent time fraud.
- Suppliers – have checks in place to ensure that you are dealing with high-quality suppliers. Ensure you check you are dealing with the right people to prevent scams. After the first stop of checking Companies House, then the company’s website, an internet search will reveal any reviews and ratings on other sites. Also check for past lawsuits, industry watchdog or regulatory problems.
- Employees – ensure employees are appropriately inducted and trained. Minimise the risk of procedures and practices not being adhered to either because of fraudulent activity or simply due to incompetence. It may be time fraud (‘buddy-clocking’) or workers not applying the controls you have put in place. Ensure staff renew relevant licences and permits on time to comply with legal requirements.
- Insurance – even if you’ve put in place all the measures possible, it is advisable to consider whether to take out insurance cover to mitigate any residual risk exposure. Companies offer insurance for a number of areas e.g. employment issues, business theft, cybercrime and even reputational damage via social media platforms.
Risk mitigation should be included in every business plan. It’s important for business survival and business continuity.
Chronologic’s Workforce Management System gives employers confidence in the accuracy of their time and attendance and HR data. It can help employers keep on top of details about their workforce, manage fire roll call data, provide alerts about renewal reminders and give clear editing audit trails.. The automated system saves you time and increases efficiency, leaving you free to concentrate on other aspects of your business.