Why Should Small and Medium-Sized Businesses (SMBs) Care About Risks?
Small and medium-sized businesses (SMBs) often have limited resources, so their approach to risk management must be practical. Just because a company doesn't formally address risks doesn't mean that the business isn't actually managing them. Risk management shouldn't become a bureaucratic exercise of "just filling out forms for the sake of it." Risk management is a natural instinct for protecting your business and ensuring its survival.
What are Risks and Risk Management, Simply Put:
- Risks are potential problems looming over your business.
- You want to prevent these problems, or at least be prepared for them if they do occur.
Focus on the Biggest Problems
- Problems can be small or large.
- Large problems (risks) can jeopardize your business operations or employee health.
- A major problem could also be not complying with laws or regulations, leading to a hefty fine.
- You should deal with large problems by removing their cause, transferring the risk (like with insurance), or otherwise reducing their impact.
- If you do nothing, they usually don't disappear on their own.
- You can accept minor problems (which means taking the risk).
Risk Management Explained Simply
Risk management often sounds complex, but for practical purposes, especially for small and medium businesses, it boils down to three straightforward steps:
1. What Risks Do You Face?
- When you analyze risks, you're essentially identifying potential problems or threats to your business. These can be minor or major.
2. How to Handle Those Potential Problems
- For each identified risk, you need to decide on a plan of action.
- You could choose to accept the risk – meaning you do nothing and hope it doesn't occur, or you're ready to deal with it if it does.
- Alternatively, you can work to reduce the risk, transfer it to another party (like through insurance), or eliminate the source of the risk altogether.
3. What's the Result?
- Ideally, you'll have identified and planned for risks, leaving you with minor, acceptable issues that your business is prepared to handle. Or,
- Without proper planning, you might end up with a significant problem, and all you can do is hope it doesn't occur.
1. Risk Assessment and Analysis
- Risks are potential issues that may or may not occur.
- Start by identifying potential threats that could seriously impact your business operations.
- Focus on risks that could jeopardize your business, lead to significant financial losses, or result in penalties.
- Think of it this way: "If this happens, do we have a major problem?"
- Assess the potential impact of each risk, from "we can manage it" to "it would shut us down."
- Risks should be identified by management or the business owner, as they are most familiar with potential issues.
2. How to Address Future Problems
Once you have your list of potential problems, you need to decide how to deal with each one. What are your options? The best approach is to prevent problems from happening in the first place.
- Take no action = the problem persists
- Eliminate the risk source = the problem goes away
- Transfer the risk to someone else = someone else handles the problem
- Reduce the risk to an acceptable level = the problem becomes manageable
- For every problem, you should have a plan for how to resolve it and how to react if it occurs
3. What's the Outcome of Risk Management? Manageable Problems
Risks are a part of doing business, and problems will always come up. It’s not about if they'll happen, but when. The important thing is that you're ready to deal with them. Ideally, your risk management efforts result in small, acceptable issues that your team can manage and quickly resolve. However, you might also identify a risk that you simply can't prevent or address (for example, due to budget limits or a lack of resources), or the problem's occurrence is completely beyond your control. In such a situation, you're left with a significant challenge, and you'll just have to hope it doesn't occur. You simply have to accept that risk. If that’s the case, you should at least have a backup plan prepared, or a clear idea of what you’ll do if that problem arises.
How to Treat Problems?
The best way to handle problems is by preventing them. However, when a problem does occur, you should have a plan on how to resolve it and react correctly.
How to Prevent Problems
By managing risks, you can completely avoid problems – either eliminate their source or transfer them to someone else. These are ideal scenarios. If you want to reduce risk, preventing problems is ideal. This can be achieved either through technical measures (for example, non-slip flooring reduces the risk of slipping) or through human-side measures – training, process changes (for example, the correct procedure for handling acid prevents injury).
- Technical Measures
- Employee Training
- Process Improvement
How to Respond to Problems When They Occur
When a problem does occur, you should have a plan on how to resolve it and react correctly. This means having a plan to effectively solve the situation and how to return to the original state as quickly, efficiently, and easily as possible.
Sharing Company Risk Information
Sharing this information isn't just red tape – it helps a business better withstand and respond to challenges and crises. It's therefore crucial for small and medium-sized businesses (SMBs), not just large corporations. Even in a small company, poor communication and lack of information sharing can be the primary reason for failing to prevent or effectively manage issues (e.g., a cybersecurity breach, equipment breakdown, or employee injury). SMBs are increasingly taking risk management more seriously, often driven by demands from customers, insurance providers, compliance requirements, and a growing understanding of their own vulnerabilities.
Why Sharing Information is Important
- Supports Audits and Insurance – Well-maintained documentation and an overview of implemented safeguards increase the company's trustworthiness.
- Avoid Repeating Mistakes – Shared information about past issues helps learn and avoid making the same mistake twice.
- Reduce Wasted Time and Effort – If people in the company share information about emerging problems in an unorganized way, it leads to a lot of wasted time and duplicate efforts.
- Increase Employee Engagement – When people see that risks are being shared and addressed, they are more likely to get involved.
How to Manage Risk Information Sharing in a Medium-Sized Company?
You can manage everything manually, on paper, spreadsheets, or via email. If the company is larger and the overall business environment is more complex, relying on email threads or spreadsheet 'ping-pong' will often create more headaches than help. Sharing and communication become simpler when using a dedicated application to track risks, their origins, discussions about mitigating them, the actions you're taking, and more.
- A risk register will help you share and communicate the list of risks across the company.
- It's therefore important to know where to start and how to proceed with setting it up.
Overview of Risks, Risk Sources, and Problems
- List of identified risks: To increase awareness of what threatens the company and where the vulnerabilities are.
- It's useful to have information about the sources of risks, whether they stem from your assets or business processes.
Coordinating Measures
- Measures that help you reduce risks
- Implemented and Planned Actions: To make it clear who is responsible for what, and to prevent duplicate efforts or critical oversights.
- Risk Management Tasks: For an overview of responsibilities, deadlines, and progress.
- Findings from audits or inspections: Enable tracking compliance status and required corrective actions.
Reporting Problems and Incidents
- Various incidents, deviations, accidents, near misses
- Clear procedure and responsibilities for incident resolution
- Often required by regulations, especially crucial for businesses in heavily regulated sectors.
- For learning and preventing further occurrences.
Employee Training and Awareness
- For employees to know what is expected of them and how to behave, they must understand company policies, rules, and operating procedures
Recommendations for a Medium-Sized Business
- Use a straightforward, main platform (like Aptien) to keep track of potential issues, what you're doing about them, and who's doing what.
- Keep private information separate based on job roles – for example, the IT team doesn't need to see HR issues, and the HR team doesn't need to see IT issues.
- Set up regular information sharing and check-ins (like quarterly security meetings or reviews of what went wrong).
- Get your employees involved – make it easy for them to report problems or near misses (using a form or app).
Summary of terms:
- risks (potential problems or threats),
- actions (steps taken to fix the problem),
- incidents (something that happened, or almost happened),
- tasks (responsibilities assigned to individuals).