Thomas M. Bragg on Business Risk Management

In Part I of this series, I described the outcomes of risk evaluation. (It got a little long. Sorry.) In this post, let’s start digging into the individual steps.

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What’s Involved in Evaluation?

Evaluating your identified risks involves 4 different activities. As you will see, it’s a lot easier to do the evaluation if you are working in a spreadsheet or some other computer based application. Here are the four steps, in order:

1. Estimating the probability of the risk occurring
2. Estimating the potential impact if the risk does occur
3. Calculating the “probable impact” of the risk
4. Evaluating your business’ sensitivity to the risk Read the rest of this entry »

As you recall, the 3 steps of business risk management are:

1. Identify your risks
2. Evaluate your risks
3. Plan for your risks

I’ve written a couple of posts (here and here) about the first step – identifying risks and creating your risk inventory (list of risks and opportunities). I’ve also written about the related topic of identifying your opportunities. It hasn’t been an exhaustive tutorial, but hopefully there has been enough information presented to help you gain a basic understanding of how to get started.

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Now let’s start talking about evaluating the risks. (Note: Whenever I write “risks” in this post, I am also referring to opportunities. They are evaluated in exactly the same way.) In this post I’m going to describe what results from the risk evaluation exercise. The next post will get into the specific actions involved in the evaluation. Read the rest of this entry »

Most people think that risk management only deals with the potential bad things that could happen to your business. What a huge misconception. A key outcome of risk management is the identification of your opportunities, too. Very few businesses actively manage their opportunities, but those that do stand out above the rest in terms of growth and profitability. If you put just a little bit of effort into it, you can join the ranks of the best managed businesses.

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As I wrote a while back, businesses make a lot of assumptions. Almost all assumptions are wrong, which means that the actual result may potentially be worse than the assumption (a risk) or may be potentially better than the assumption (an opportunity). Opportunities can be identified and managed in exactly the same way as risks…

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About a week ago we talked about how to identify your risks. I asserted that “almost every risk comes from assumptions” and we, as business owners/managers, make A LOT of assumptions. Where do we start?

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It may be helpful to think about all of those assumptions and associated risks by breaking them down into 3 broad categories.

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1. Budget (financial) Risk
2. Schedule (calendar) Risk
3. Quality Risk

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Let’s take a brief look at each of them…

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As I’ve written previously, there are three basic steps in risk management. The first step is “Identify the risks”. Easy enough, right? Not if you don’t know what to look for. What is a risk? Where do they come from? How do I find them? Let’s take a look…

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My friend Jill and I were talking about the business risk management book I’m working on. Jill consults with small businesses and was saying how many small business owners are hesitant or even resistant to planning. Many just don’t feel that they have the time or are intimidated by the process and the required effort. “Why should they care about risk management, Tom?”, Jill asked. It’s a very good question.

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In my mind, there are 5 reasons a business owner should want to learn about and practice business risk management. By implementing business risk management, you can:

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1. Avoid bad things that are likely to happen to you.
2. Minimize the consequences of bad things that you can’t avoid.
3. Identify and take advantage of opportunities you may not see.
4. Do more than just insure against a few risks, with little or no added expense.
5. Join the best-run businesses.

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Let’s briefly talk about each reason…

Read the rest of this entry »