How to implement a Risk Management System into your business

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Many small business owners struggle to draw a line between risks that are downright bad, and those that are gilded by their potential payoffs.

Integrating risk management into a business’s strategy will help to distinguish between these two kinds of risks. It will also help reduce the impact of unforeseen but predictable events that might otherwise result in crisis.

Taking time to implement a robust risk management system makes good business sense.

Risk Management: The Basics

At its most simple, a risk management system is basically a checklist that covers all the areas of risk encountered by a business. This normally includes finances and budgeting, legal compliance, security, contracts and insurance.

Once the risks have been identified, risk management tools can be put in place to monitor those risks and procedures can be implemented to manage them. Regular monitoring and reporting is important but pro-active management rather than simple data gathering is an essential part of having an effective system in place.

For example, financial controllers tend to have an acute awareness of a business’s risk, so it is important that they are co-opted into the business’s risk management strategy.

Compliance is also crucial for many businesses implementing an integrated risk management system.  Monitoring the legal side of your business should ensure the company is adhering to all existent company standards and policies, as well as the law.

Staying on Top of Risk Management

Through a properly structured risk management system, a business can pinpoint its areas of weakness and make necessary improvements during the course of its normal operations.

Managers should bear in mind that a risk management system is not a one-stop solution able to plug potential business risk once and for all.  Rather, business risk is constantly changing and evolving and it needs an integrated strategy to manage it.

Conducting regular reviews of the risk management system is good practice. New risks that arise with changes to regulation or the business environment can be identified and the system adapted.

Risk Management and Business Decision-making

Risk management should also be integrated into the business decision-making process.

It is particularly important in an owner management business, where competing perspectives aren’t always available. ACCA research shows a general lack of risk awareness in decision-making, playing down risk to get approval for proposals and overstating business benefits and underestimating costs.

Incorporating good practice into the decision-making process such as questioning proposals, recognising uncertainties and measuring and managing them against risk data, as well as making unbiased decisions irrespective of personal interest can improve decision-making.

Having a structured risk management system in place that provides risk information readily to hand makes this easier to fulfil on a consistent basis. It also enables managers to take a holistic view of overall business risk.

Getting the Right Help

ACCA research has highlighted the importance of accountants in the risk-management process.  They are well placed to recommend risk management procedures, so make sure you speak to your accountant, and take advantage of their expertise, in order to improve your business’s risk management strategy.  For help and advice with implementing an effective risk management strategy speak to our expert, Grant Franklin.