Managing Risk in your Small Business

What are the largest risks to your small business? Do you have plans in place to reduce those risks?

Risk cannot be eliminated but it can be managed. The following tool is a way to record, prioritise and monitor individual risks so that you can reduce their impact on your business.

Step 1: Identify risks

A risk is an uncertain event that if it happened would negatively affect your business.

Brainstorm across every aspect of your business to identify all significant risks. Consider both internal and external risks.

Step 2: Record on a ‘Risk Register’

Record each risk identified on a ‘Risk Register’.

The ‘Risk Register’ should include the following.

Risk description
Impact rating
Probability rating
Risk score
Risk class
Action to be taken
Individual responsible
Date reviewed

Step 3: Rate the Impact

For each risk identified ask, “What would be the impact on my business if this risk actually happened?”. For example, what would be the impact of a fire where you work? How many days would your business be closed for? Would it recover at all?

Rate the impact on your business between 1 and 5, with 1 being low impact through to 5 being high impact. Record on the ‘Risk Register’.

Step 4: Rate the Probability

For each risk ask, “What is the probability or likelihood of this event happening?”. A meteor hitting your business premises might be devastating but how likely is it?

Rate the probability of the event happening between 1 and 5, with 1 being extremely unlikely to happen and 5 being almost certain to happen. Record on the ‘Risk Register’.

Step 5: Calculate the Risk Score

For each risk that you have recorded on the ‘Risk Register’ calculate the ‘Risk Score’ as the Impact rating multiplied by the Probability rating.

Risk Score = Impact Rating x Probability Rating

The ‘Risk Class’ is high risk, medium risk or low risk and can be assigned from the ‘Risk Score’ as follows:

1 to 10 is Low risk (L)
11 to 14 is Medium risk (M)
15 to 25 is High risk (H)

The ‘Risk Score’ and ‘Risk Class’ are shown on the chart above.

Record on the ‘Risk Register’.

Step 6: Determine Action

Now that you hopefully have a complete list of risks that are prioritised by their ‘Risk Score’ you can determine what the necessary action for each should be. Low risk items will usually require little to no action but dealing with high risk items may incur significant costs.

When you decide on what action to take assign responsibility for that action to an individual.