A survey of CEOs from various parts of the globe revealed that 28% of US CEOs perceive corporate risk management as a board priority. Enterprise risks are inevitable and an integral part of business Insurance growth. However, business owners must develop a solution to protect their companies from drowning.
Developing a robust risk management program is the key to defining your company’s objectives.
The idea helps you identify risks that are not apparent, develop a better defense and minimize business liability. Check out these strategies to help you develop an insurance program to protect your investment.
Set Your Business Objectives
The first step to creating a risk management plan is outlining your goals. With this, you can easily develop a program that aligns with your bottom line.
For instance, it could be that your primary aim is to maximize profits. Or, you want to protect your company from liabilities, especially if you run a contractor’s business. Whichever is the case, ensure that your business risk management plan facilitates those goals.
Identify Possible Risks
Now that you know what you wish to achieve by protecting your business from risks, it is time to identify those hindrances. Take a systematic look at the possible risks that companies in your industry and niche face.
Identifying risks helps you establish the severity of the risks and the best strategies to help mitigate them. Have a look at the main risk categories in business.
The economy is the most unpredictable factor in running a business. It constantly changes due to market fluctuations, and the least you can do is ensure that you are prepared for those changes.
Negative economic changes result in reduced sales. This adversely impacts your bottom line. It is critical to keep up with the changes and trends to help prepare for the potential economic downturn.
Running a successful business requires you to follow an abundance of rules and regulations. For instance, you must comply with data protection measures, payment processes, employee protection rules, and meet production standards, to mention a few compliance requirements.
Failure to live up to the laws results in fines and penalties. In the extreme, it could lead to business closure.
It will help to identify any aspects that could hinder your compliance to help you come up with a mitigation plan.
Security and fraud risks are among the most common threats to business growth. This comes with the constant technological advancements and as more brands shift to online operations.
There is a rise in hacking, identity theft, and data breaches. And without a plan, such incidents can kill your business reputation, trust, and finances.
Customer dissatisfaction is a major risk that should not be overlooked. Similarly, a lawsuit, negative press, or product failure can adversely affect your brand’s reputation. And where there is no trust, there are no customers.
The rise of social media has accelerated the speed of reputation risk. One negative review on Facebook or Twitter can lead to an abrupt fall in followers, thus reducing revenue.
Leveraging a reputation management plan is the trick to preparing your company for this risk. It helps you monitor what people say about your business, both online and offline. And in return, you can come up with a speedy solution to control and respond to the comments.
Did you know that stiff competition is a threat to your business? Certainly, you will always have competitors in your sector. But failure to identify what those competitors are offering to appeal to customers will make you miss out on a lot.
Corporate risk management entails reassessing your performance and developing strategies that will push you to the top of the map. Think of ways to build and maintain strong relationships with your audience. You can check what your competitors are doing and then do it better.
Operational risks can be internal, external, or a combination of both. Such risks happen unexpectedly and result in the discontinuity of your business.
Operational risks could be natural disasters such as floods. Or, it could be a fire accident that destroys and wipes out your assets. An operation risk may also be an unexpected technical or power outage that results in data loss or a mistake by your employee that costs you money and time.
Investing in commercial insurance is the best way to protect your investment from unforeseen circumstances and give you peace of mind knowing that whatever happens will not affect your business continuity. Click here to check out the different types of business insurance products.
After creating a list of all potential threats to your business continuity and success, it will help to assess them one by one and identify which ones to prioritize. Consider the risks likely to deal your company the biggest blow and focus more on them.
You can achieve this by creating a rating scale. And don’t attempt to tackle all the risks at once. Instead, set goals to first handle the risks with the highest possibility of hitting your business and the ones that align with your company’s objectives.
For example, if you run a brick-and-mortar business, natural disasters could hit at any time. Similarly, hazards such as slips and falls or employee accidents may happen unexpectedly. Such risks are easy to tackle as you only need to get comprehensive insurance cover and you are good to go.
Others, such as competition and reputation risks, require gradual planning. Start working on measures to make your company risk-proof without expecting immediate results.
Analyze the Risks
Your risks are now prioritized, and you are ready to start handling them one by one. But do you have adequate resources for this?
It will help to analyze the risks to determine how much it will cost you to make your company threat-proof. The amount depends on the possible impact you will likely feel should the risk occur.
While some risks can be covered by insurance, some require you to use your business capital. For instance, competition risk demands you put in resources to be better than your competitors. Others, such as lawsuits, require you to set aside an amount to manage the consequences of the claim.
Lost productivity due to an employee mistake or technical error will cost you money, so you must put that aside. Such aspects are aspects to consider during risk assessment and planning on how to mitigate those risks while saving the company money.
This part of corporate risk management involves developing strategies that your business can implement if the unexpected happens.
The first strategy is risk avoidance. How can you prevent the risk from happening in the first place? Some risks are extremely costly, and it would help if you avoided them at all costs.
For example, shifting your business to a new location may sound like a rewarding idea. But it would be best if you thought of the competition in your new location. Your brand may take a while to recover from this, so although the idea could bring you huge returns if you are not fully prepared, you better avoid the idea.
The other effective risk management solution is reduction. In the example above, if you feel that business relocation could greatly benefit your brand, you can still go ahead with it, but with more caution.
Take your time to develop a plan to minimize the potential risks associated with the idea. You may open a small branch in your desired location while maintaining your present office. Observe how your business performs in the new location before relocating fully.
The next and most effective risk management solution is risk transfer, and there is no more effective solution than investing in insurance. Luckily, you have a range of types of business insurance to choose from, depending on the risk you want to transfer.
If your priority is to protect your business from data security breaches and theft, cyber liability insurance has you covered. On the other hand, if you are worried about hazardous and operational risks, you have property and liability insurance policies to handle that.
Develop a Corporate Risk Management Plan
The final step is to develop a corporate risk management plan for each evaluated risk. You will acquire a risk management document outlining the risk assessment, analysis, and solutions.
The plan highlights the procedures and policies you wish to follow to mitigate risk. Note that the risk management plan should create room for flexibility. You should review it regularly when new risks arise and make changes where necessary.
In this case, your insurance program should indicate which risks you wish to prioritize and how much you plan to set aside for each risk to cover.
Most importantly, monitor the performance and effectiveness of your plan, keeping in mind that as your business grows, the potential risks change.
Protect Your Business from Success Hindrances With a Risk Management Plan
You now understand the potential business risks, the importance of a risk management plan, and how to develop one. It will help to ensure that you support your corporate risk management plan with insurance coverage. With this, your company is ready to face anything with minimal room for failure.
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