The Most Essential Business Risks to Remember

Risk management

If you want to launch a business, you should consider risks, even if it is a platform with horse race results for yesterday. And these are the most essential things to pay attention to.

Risk of Losing Competitive Advantage

In highly competitive industries, it can happen that a company loses its competitive edge. For example, a new product enters the market that has much better consumer features than the one you offer. Or another firm has been given the opportunity to significantly reduce its production costs. To reduce this threat, always keep an eye on the market, the biggest competitors, and technological developments in the industry. A breakthrough that occurs in a competitive environment should not come as a surprise.

Economic Risk

These are changes in the economy that can cause a company’s sales to fall or costs to rise. There are a large number of tools that reduce the impact of the following risks: from diversifying the business beyond one state and mono-product to fixing contract prices on a long-term basis. Some economic risks cannot be countered, but that does not mean they can be ignored.

Operational Risk

Suppose an excavator operator at a neighboring site broke a communication line while working. The company is instantly deprived of the flow of incoming calls and the internet. Even one day without customers is a significant loss of revenue, so you need to think about setting up backup or alternate work processes.

Risk of Regulatory Non-Compliance

We may simply not be aware that we are violating the law or governmental requirements. We may also be unaware that one of the managers bribed to secure a lucrative contract for the company. But in case the violation is detected, the organization will have to answer. Thus, Airbus was fined for 4 billion Euros for bribes paid in 16 countries. Zero tolerance in the company regarding corruption, racism, sexism, environmental protection and employee health will help significantly reduce the likelihood of this risk occurring. A large company must have policies and procedures in place that all employees should know and follow, and employees should be fired for violations, regardless of job level.

Strategy Risk

A mistake in strategy can bring an organization to the brink of collapse. Decided to enter the market with a quality product, but consumers wanted a cheap one. Invited a star top manager and he turned out to be incapable of managing the business. They chose the Internet to advertise a product, but the target audience only watched television. These are all examples where a failure in strategy leads to problems. To prevent this, you should identify weaknesses in the market, industry, suppliers, production, and put fuses everywhere: an additional plan in case the strategy does not work.

Reputational Risk

The company is people, and if some of them are incompetent, dishonest, prone to cover their own unprofessionalism with lies or crimes, the reputation of the firm is at risk. Imagine a customer service operator deceiving clients so as not to bring the problem to management. The organization already loses credibility and reputation, and if the situation along with the evidence gets to social networks or the media – the losses will be even greater.

This risk can be prevented by starting to build trust and transparency with customers in advance with useful content and a pleasant customer experience.

Programmatic Risk

Failure can also happen with a company’s individual business program or portfolio of projects. Try to set up the company’s program and product lines in such a way that failure in one of them does not become a major problem for other lines of business. That is, the entire business should not depend on the success or failure of one program, even if it is a startup based on one product.

To avoid this risk, you should develop several ideas simultaneously. For example, if you decide to launch an online platform, choose ten different directions and make ten websites, then the chance of success will increase.

Project Risk

An individual project can also fail. This can happen because of a mistake in the budget, technological unpreparedness, lack of appropriate specialists and the like. The failure of a project as well as a program should not cause such consequences, leading to significant problems for the company as a whole.

Innovation Risk

When a company develops or implements an innovation, no one can guarantee that it will be a success. Regardless of the outcome, resources will be wasted. Don’t spend money on innovation just because it’s trendy, remember that progress requires careful analysis and planning.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.