Risks are present in every business and environment. Some cause significant damage that can cost a company a lot of money, while others can destroy an organization permanently. Since business owners cannot avoid risk altogether, they need to anticipate and manage it to minimize its negative impact.
Risk identification is the first phase of managing or mitigating risk. This is a process of enumerating and evaluating threats to an organization, its employees, and its general operations. This can be a challenging task, as risk identification involves several steps, including analysis, treatment, and monitoring.
The good news is that strategies are available to help you in the process of risk identification. Apart from using a reliable enterprise risk management (ERM) platform, consider the following suggestions:
Conduct External Research
Start by researching the everyday occurrences and unique trends surrounding your industry. Unless your business belongs to a brand new sector, you’re likely to learn something about identifying risks from organizations that have “been there and done that.”
Well-established companies similar to your business could give you valuable insights on identifying risks in their organization. Ask them for access to trend reports or industry research highlighting common risks present in their business.
Alternatively, keep a close watch on competitors similar to yours. You could identify the same kinds of risks in your business by checking a company’s published losses, legal precedents, and news releases.
Do Internal Research
Perform research within your organization by working closely with employees who manage claims and losses. By simply observing how they do their work, you’ll come across areas that need improvement or require immediate correction. A department with unusually high costs, for instance, could point to an unmanaged risk.
Also, look at your company’s data and trends. Check for near-misses, as these are problem areas that require the attention of your risk management team.
Take a Pessimistic Approach
Although being pessimistic might not sound like the best approach in managing a business, it’s highly useful in identifying company risks. Pessimism can pay off for businesses. According to a study conducted by the University of Bath, optimistic thinking could lead individuals to start a business with no real idea of financial success.
When looking at your organization with a pessimistic lens, find out the worst thing that could happen in your business. If something does go wrong, determine how the sequence of events will unfold in your company.
During this stage, refrain from assuming that an event can never or will never happen. Challenge your assumptions about your organization’s risks and come with a plan to mitigate them.
Check with Experts
Insurance brokers, financial advisors, and accountants are specialists who can help you identify risks in your business.
Insurance brokers are aware of your organization’s claim history, which enables them to offer invaluable information on trends. If your broker says that your company is experiencing the same kind of loss multiple times, it could mean that you’re not managing a business risk properly.
As for accountants and financial advisors, they offer insight into the types of regular payments you’re making. They can also provide advice on the possible financial risks of your organization.
These practical strategies allow you to identify risks in your organization. With sufficient risk identification, your business can come up with a plan to efficiently tackle and mitigate threats that negatively affect your organization.