Businesses face many risks every day, which is why risk management should be a central part of any business's strategic management.
This guide will help you to construct a risk management policy and to ensure you have the right protection in place against unforeseen risks.
Risk management is a continuous and iterative process in which you are constantly evaluating risks to your business and their probability, and planning what you would do if the worst happens. Risk management is all about being proactive, and not having to react once a problem has already occurred.
How to draft a risk management policy
Risk management requires that your business strategy and goals should already be in place. Once you have identified your goals, it becomes easier to do a risk assessment exercise.
Developing an appropriate risk management strategy takes considerable effort and planning. One approach might be a good idea to look at each functional area of your business and plan your risk management strategy at a strategic, tactical operational and execution level.
1.Methodically identify the risks surrounding your business activities
A great place to start is with a SWOT analysis – strengths, weaknesses, opportunities and threats. Events that could increase your Weakness and Threats are negative risks. Other tools you can use are PEST analysis (political, economical, social and technological factors). Do this exercise with colleagues and employees. Document the risks.
2. Assessthe likelihood of an event occurring
For each risk, figure out its probability of occurring. You could define the occurrence of each risk as percentage or just as “high”, “medium” and “low”. It all boils down to your judgment and experience; and more importantly, your perception of the future. Determine the impact if each risk were to occur. What would happen if you were suddenly flooded with orders, or two of your best employees resigned?
3. Plan a response to each identified risk
Once you have rated each risk, decide what to do if the risk were to occur. You have several options:
- Mitigate the risk: This implies that you find ways to reduce the probability of the risk occurring or try to reduce its impact.
- Accept the risk: Sometimes we just have to accept the fact that there is nothing you can do if the risk occurs.
- Transfer the risk: Think insurance. You are transferring your risk of something bad happening to another party for which you typically pay a premium.
- Avoid the risk: This typically would mean changing your goals and objectives entirely. The most radical form of risk avoidance would be to shut down your business.
- Exploit the risk: If a positive risk were to occur how would you exploit this opportunity to further your goals and objectives
Now that you have a risk management policy, don’t forget about it. Review and update your risks at least every quarter. You’ll be surprised on how things can change in as little as three months. Also, be sure to monitor the effectiveness of your risk management approaches and controls.
How to mitigate common risks
Key Person Insurance
Key business skills and expertise are critical to the smooth running of any organisation. Key person insurance is a policy which covers the life of key individuals in a company, and enables the business to cover losses that may occur if the employee dies or becomes disabled.
The policy is owned by the company and pays out proceeds on death or disability. It provides liquid funds for the business to compensate for the sudden loss or replacement of a key person. This helps to ensure the continued existence and development of the business, and that existing and potential contracts are not affected. It also provides an interim cash amount for recruiting, training and developing new employees.
There are a range of products including traditional medical aid schemes, new generation health care products and top-up schemes available that provide organisations with cost-effective health insurance solutions.
This is aimed at both protecting your lifestyle and easing financial burdens you may face should you no longer be able to work due to disability. This product is geared towards helping you settle any medical debts and accommodate the change to your lifestyle.
Standard Bank will pay out a lump sum, of up to R5 million if you are permanently unable to do your job, or any other work you would be able to do with your education, knowledge, training and experience, as a result of sickness or injury.
IT – data backup and recovery
Like large enterprises, SMEs are experiencing explosive data growth, yet the
backup processes they have in place often put that data at risk. Once it’s lost, data can never be easily recovered or replaced. Lost data equals lost sales, lost customers and severe business disruption.
That means policy-based backups, automated operations and centralised management should be key to help small businesses effectively manage system and data protection operations. Integrated disaster recovery capabilities, meanwhile, make it easier to rapidly restore complete systems.
Newer technologies such as disk-based backup, snapshot backups, data de-duplication, continuous data protection and cloud-based backup options can help SMEs address shrinking backup windows and recovery reliability concerns.
By developing data backup and recovery strategies and deploying appropriate solutions regarding backups of important data on a timely basis, SMEs can ensure that their data, or most of it at least, will never be truly lost.
Intellectual property insurance
IP insurance is designed to protect your IP – such as patents, trademarks, logos and names -- from infringement by others. Usually, a business will register trademarks and patents with the Companies and Intellectual Property Commission (CIPC), but you may also want IP insurance if your business is focused on a patent or unregistered designs.
Business insurance generally provides cover for the following risks:
- Business Interruption
- Accounts Receivable
- Office Contents
- Employers liability
- Electronic equipment
- Goods in transit
- Accidental damage
Standard Bank’s Business Insurance for SMEs is a packaged insurance solution aimed at SMEs with a maximum turnover of R10 million. The product addresses business risks ranging from fire to theft and liability. It is an insurance solution packaged with the right combination of traditional and specialised insurance covers to reflect the needs and requirements of small businesses in South Africa.
The package offers an all-inclusive monthly premium, relevant covers and benefits for your business, and monthly premiums are based on the business turnover and nature of business.
Standard Bank has launched affordable business insurance designed particularly for start-ups to help ventures stay afloat even when unforeseen circumstances arise.
The R150 monthly premium of BizLaunch insurance caters for businesses that have an annual turnover of less than R1,2 million and a total asset value of less than R100 000 (excluding motor vehicles). At the premises, the insurance covers property loss or damage, including general contents and stock of up to R30 000; R5 000 in money; electronic equipment of up to R5 000 and offers public liability cover of up R250 000.
Other risks covered include theft following forcible entry into the building, and accidental damage, with a maximum payable of R5 000 for each claim. The excess payable on each claim is R1 000.
For more information speak to a business banker by calling the BizDirect call centre on 0860 012 345 or email [email protected]