A modern business plan that will lead your business on the road to success must have another critical element. That element is a part where you will need to cover possible risks related to your small business. So, you need to focus your attention on something that is called risk management and use specific risk management process if you want to succeed as an entrepreneur.
You can always plan and predict future things in a certain way that will happen, but your impact is not always in your hands. There are many external factors when it comes to the business world. They will always influence the realization of your plans. Not, only the realization, but also the results you will achieve in implementing the specific plan. Because of that, you need to look at these factors through the prism of the risk if you want to be able to implement an appropriate management process during the implementation of your business plan.
What is a risk for your small business?
In dictionaries, the risk is usually defined as:
The possibilities of dangerous or bad consequences to become true.
When it comes to businesses, entrepreneurs or in this case the process of business planning, it is the possibility that some aspects of the business plan will not be implemented as they were planned. Such a situation could result in dangerous or harmful consequences for your small business.
It is simple. If you don’t implement something you have in your business plan, there will be some negative consequences for your small business.
Basic characteristics of risk
Before you start with the development of your small business risk management process, you will need to know and take into consideration the essential characteristics of the possible risk for your company.
What are the basic characteristics of possible risk?
The basic characteristics of risk are the following:
The risk for your company is partially unknown
Your entrepreneurial work will be too easy if it is easy to predict possible risks for your company. The biggest problem is that the risk is partially unknown. Here we are talking about the future, and we want to prepare for that future. So, the risk is partially unknown because it will possibly appear in the future, not now.
The risk for your business will change over time
Because your businesses operate in a highly dynamic environment, you cannot expect that it will be something like the default. You cannot expect that the risk will always exist in the same shape, form or consequence for your company.
The risk can be predicted
It is something that if we want, we can predict through a systematic process. If you have appropriate risk management process installed into your small business, you can easily predict the risk.
The risk can and should be managed
You can always focus your resources on eliminating or reducing risk in the areas where it is expected to appear.
Risk Management Process You Should Implement
Risk management process cannot be seen as a static process in your company. Instead of that, it must be seen as an interactive process in which information will continuously be updated and analyzed. You and your small business members will act on them, and all risk elements will be reviewed in a specified period.
Such a risk management process will need to cover the following elements:
- Defining risky areas – Where is the most significant risk for my company?
- Determining the indicators – What will be the risk for my company? How will I measure the risk for my company?
- Monitoring all those risky areas – Is the specific risk indicator appear during the operation?
- Taking concrete activities to deal with the risk – What can you do regarding the risk?
- Monitoring of implemented activities – Are the taken actions regarding the risk of the right measures?
- Revision – Can you improve something regarding the risk management process? Is there a need for new risk indicators?
What do you need to include in your business plan regarding your risk management process?
Now you need to transfer the process of risk management into a specific title of your business plan. Based on what I have already explained here, the following subsections you will need to have in your business plan:
1. Risk Areas
For your small business, there can be many different risk areas that can be defined in different ways. To start with something concrete, you can use the following:
- Value proposition,
- Customers relationships,
- Distribution channels,
- Key resources and
- Key partners.
It is not necessarily that there will be the risk in all areas and that the risk will be with the same intensity for all areas. So, based on your business environment, the industry in which your business operates and on the business model, you will need to determine in which of these areas, there is a possible risk.
2. Main risk indicators
Risk indicator is a kind of measure that should tell you whether the risk appears or not in a particular risk area you have defined previously.
Let us take an example. For distribution channels, an indicator can be a delay in delivery for a minimum of three days. This indicator will tell you that something is wrong with that channel, and you must respond to it appropriately.
The purpose of this step of the risk management process is to observe all defined areas through indicators. The goal here is to see if there is something wrong.
For example, if delivery is late more than three days you know that the risk happened, and you need to move to the next step.
In this part of the business plan for each area and indicator, you need to establish a system for monitoring by delegating responsibilities.
Once the risk has appeared and is located it is time to take concrete actions. The goals of the activities should be to prevent it in the future, reduce or completely eliminate their influence on the business operations or the execution of your business plan.
To continue the example for distribution channels with delivery delayed more than three days as possible activities can be the following:
- Apologizing to the customers for the delay,
- Determining the reasons for the delay,
- Analysis of the reasons
- Removing the reasons
- Consideration of alternative distribution channels …
In this part of the business plan for each area and indicator try to standardize all possible actions. You can not expect that they will be final. But, you can cover some basic guidelines that will need to be implemented if the risk appears.
5. Monitoring of implemented actions
Because this risk management process is a dynamic process, you must apply the monitoring process. In such a way you can ensure the elimination of a specific kind of risk in the future, and you will allocate your resources to new possible risks.
The example above should answer the following questions:
- Is the apology accepted?
- After eliminating causes, are there again some cases of delay?
- What about new delivery channels? Are they timely now?
As the last step that you need to plan is when and how you need to conduct a review of the risk areas and indicators. This is an integral part of your efforts for continuous improvement in your small business.