Key Learning Outcomes
- Recognise that there is risk in everything we do in life and the key is to manage it.
- Learn how to identify and measure the risk factors in your business plan.
- Look for areas that could hinder your success and work to find solutions and adopt control measures.
- Understand both the internal and external risk factors for your business.
Every day when we wake up and walk out the door there is risk involved, and whether we are conscious of it or not, most of us weigh up the risks before doing something. So when crossing the road, the worst possible outcome would be getting run over. Our natural instinct is to minimise the risk by not crossing the road while the traffic is moving fast; we either wait for a break in the traffic or use a crossing. Next time you cross the road, even at a set of lights, watch yourself; you are likely to still look both ways prior to stepping onto the crossing. You do this as it further reduces the risk that you will be run over even though the sign says “walk”.
In business, we need to think in much the same way and consider the risks. We need to think about each one in terms of the likelihood of occurrence, and the impact that it will have on the business and your ability to achieve your goals and objectives. In large businesses there are entire departments with specialists dedicated to weighing up the risks of various decisions and projects. In a small business we do not have this luxury; however, that does not mean it is less important to analyse the risks.
There are many complex management tools and models used to identify and mitigate risk. We recommend you use a simple matrix that helps to identify the risk along with what measures can be taken to reduce the likelihood or the impact. When thinking about risks, you need to consider both internal and external factors. While it may seem negative to think about what might go wrong, the thought that goes into this section is likely to save some heartache down the track.[wlm_ismember]
To complete your risk analysis, use the worksheet provided. You will see there are four columns. The first is the risk factor broken up into operational and financial risk factors. You then need to assess the likelihood of each factor occurring, and we look at these as low, low/medium, medium or medium/high or high likelihood, and the same for the impact on your business. If you have a risk factor that is high in likelihood and high in impact, then you need to address it as a matter of urgency. Something that is low likelihood but high impact needs awareness and monitoring, and something that is low likelihood and low impact is not of immediate concern. You then look at the control activities that you can put in place to minimise either the likelihood, the impact or both. If we look at crossing the road as an example, the risk is that we could get run over. The likelihood is low if we implement the control activities of using the crossing and looking both ways, but the impact would be high.
For our case study business, The Best Beauty Salon, there are a number of risk factors that need to be taken into consideration in the business plan.
Once you have completed the risk analysis, you have all of the components required to create your business plan. The final learning article, the business plan summary, will outline how to do this and includes some tips on how to get the most out of the hard work you have put in.[/wlm_ismember]
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