Managing risks as an entrepreneur

Risk management is a critical and often undervalued function in any business. In a rapidly-changing economy, where businesses must deal with multiple emerging risks, it is critical to develop resilience through a strategically-embedded risk-aware culture in the organisation. This provides companies the ability to anticipate potential disruptions, and the agility to deal with them appropriately, thus making a critical difference in its longevity and success.

Risk management is a well-established process, designed to protect the bottom lines of organisations of any size and complexity, and to help them achieve their business goals despite any adversity they may encounter. Therefore it is extremely vital for present-day startups.

Here are four key steps entrepreneurs should adopt to manage risks effectively:

Risk manager

An ideal risk manager must be equipped with critical thinking and complex problem-solving skills, and capable of risk-based decision-making required in today’s uncertain world. They should be able to demonstrate resilience in managing crisis-like situations and enhance strategic value across departments in an organisation.

Contrary to perception, Enterprise Risk Management (ERM) is not only about managing risk in large conglomerates; rather, it provides a framework for managing risk in a holistic manner. Risk is not only about mitigating threats, but also taking advantage of opportunities that can benefit an organisation’s bottom line as well as its stakeholders including clients and customers. A qualified risk manager can help the business in proactively identifying risks at every stage, and will be able to develop a strategic, well-planned risk model backed by in-depth assessment and evaluation.

Management policy

A risk management policy provides a framework for governing risks in a manner that can protect the company’s assets and help in attaining the organisational goals while ensuring financial stability. An essential element of a risk management policy is defining and establishing a risk-based operating model with three key aspects - identification, assessment and mitigation.

Identification of risks must cover all relevant areas, including strategic, product/service, operational and regulatory. This is followed by the careful evaluation of each risk scenario and determination of the optimum method of mitigating them.

Risk governance process

Risk management is a continuous process that involves robust governance. In particular, entrepreneurs must be on the lookout for high-impact and high-probability risks, which need priority action and an aggressive response that may even include discontinuation of the activity.

Some other risks to watch out for are events which are highly probable, have the potential for high impact, and yet, are ignored by most. These events are not random and take place after sufficient warnings and evidence of their emergence. The monitoring of such events requires a risk-conscious approach which emphasises constant vigilance.

Risk-based decision making

To monitor risk-thinking among employees, their performance, in terms of risk management, should be measured periodically through internal audits. To incentivise proactive risk management, positive actions should be rewarded. Over time, this will help in inculcating risk-based decision making in the organisation. It must be continuous, performance-based, and must flow top down from the leadership to facilitate governance and diligent compliance at all levels.

Risk and opportunity are the two sides of the same coin. So the ability to manage risks is a critical aspect of an entrepreneur’s functions, and fundamental to building resilience in the organisation.

A risk-aware organisation will have a ready blueprint for almost every situation and can consequently, take quick action to avoid crises and successfully achieve key business goals.

(The author is the CEO of a risk-management institute)