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A guide to business risk assessment

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Last editedDec 20202 min read

No business venture is entirely without risk. However, conducting a company risk assessment offers one way to identify potential hazards and mitigate them. Keep reading to learn more about what’s involved in business risk assessment.

What is risk analysis in business?

Risk analysis involves the identification of any harmful factors, both internal and external, that could impact a business. Business owners take risks all the time as part of daily operations, from opening a new retail space to investing in a new product line. Sometimes these risks pay off, while other times they cause losses or liabilities.

Apart from this type of business decision, there are also wider risks such as natural disasters which must also be accounted for. By identifying these problems, both large and small, a company can conduct a business analysis risk assessment and prepare for all eventualities. The goal of risk analysis in business is to assess potential outcomes, and ultimately make smarter business decisions.

Benefits of performing a company risk assessment

There are plentiful benefits to business risk analysis, including the following:

  • Avoid overly risky decisions that could damage your bottom line

  • Identify steps needed to protect your business from external damages

  • Pull together information needed to speak with lenders about financing

  • Create an action plan to respond quickly to adverse situations

  • Reduce recovery time after a natural disaster, legal damages, or security threat

Types of risk in business

There are both internal and external risks to consider when performing a business risk assessment. Internal risks occur as part of your business’s operations, while external risks involve outside incidents that impact your finances.

Generally, inside risks are easier to mitigate. These include factors like marketing, workforce, or operational risks.

By contrast, external risks might be out of your company’s immediate control. As a result, you’ll need to prepare for their effects on your business. Examples of external risks include things like natural disasters, changes to government regulations, new competitors, or changing economic conditions.

How to perform a business risk assessment

To create your own business analysis risk assessment and accompanying strategy, follow these steps:

1.  Identify likely hazards.

The first step in any company risk assessment is to outline which hazards your company is most likely to face. This will vary according to your business’s size, typical operations, geographical location, and industry. Think about which situations would pose the greatest threat to your finances.

2.  Identify at-risk assets.

The next step is to think about the assets that would be most at-risk from the hazards you’ve written down. For example, if there was a change to government regulations impacting your mechanical processes, this would mainly cause risk to your business’s operations. Risks could also impact your finances, properties, employees, customers, or brand reputation.

3.  Document risks.

No business risk analysis is complete without fully documenting the identified risks, at-risk assets, and potential harms. Define these categories in a document, developing an internal process to give each type of risk a weight. It’s helpful to create your own scoring system ranging from mild to severe for each identified risk.

4.  Analyze the impacts.

After documenting and scoring your risks, weigh these impacts with a thorough analysis of harm. For example, if you’re analyzing the impact of a cyber-attack, you should think about the specific damages that would occur. This could include compromised customer details, harm to your company’s reputation, leaking of sensitive company information, and draining of bank accounts.

5.  Create a mitigation strategy.

Once you’ve analyzed the potential impacts of a risk, the next step is to create a mitigation strategy. In the example of the cyber-attack, this could include strengthening your online security platforms. Designate individuals at the business to implement these mitigation actions and manage risks. Create new flows for reporting and handling each risk.

6.  Perform regular risk reviews.

Finally, remember that business risk assessment is an ongoing process. You will need to determine controls used to reduce risks, analyzing patterns over time to predict and document future financial outcomes. Review these processes annually to verify that they’re still working – and identify new risks.

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