Common Business Risks (and How Risk Management Can Increase Your Bottom Line)
What Is Risk?
According to IBC, “risk, in insurance terms, is the possibility that a loss or other adverse event may potentially interfere with an organization’s ability to fulfill its objectives. A risk is also an event for which an insurance claim may be submitted.”
Many factors can contribute to business risk, including human error. However, sometimes the risk originates from external factors, such as consumer demand, economy, and supply chain disruptions. While business risk cannot be avoided at all costs, some steps can be taken to reduce its impact. Managing risk, including having a strategic plan in place, can not only reduce your likelihood of risk but having a plan may also lower your insurance premium.
Why should you manage risk?
Aside from the obvious, risk management tactics are an integral part of any organization’s overall business strategy. In doing so, you can help your business:
- Dismiss claims altogether or reduce damages should your company find itself in a lawsuit for negligence.
- Businesses that operate in the public service sector and offer professional advice are accountable to high standards.
- Businesses can be held responsible for the actions of employees.
- Businesses may find themselves the target of exaggerated or fraudulent claims.
Types of common business risks
Strategic risk
A strategic risk may occur when a company veers from its business plan. Business plans are developed strategically and implemented to provide an in-depth method to reach defined goals. If a company does not operate in accordance with its business plan, it runs the risk of operating ineffectively, which may limit its potential to reach goals.
Compliance risk
Compliance risk presents itself in industries and sectors that are regulated. Meaning a company that operates in one of these sectors will be held to strict standards for how they operate or what they manufacture. It is the company’s responsibility to understand the restrictions that must be adhered to and be compliant with laws and regulations.
Operational risk
Operational risk references uncertainties and hazards that arise from daily business activities. Often, it is caused internally by a breakdown of procedures, employees, equipment or systems. However, it may also refer to property damage that may impact your business’s ability to operate. Operational risks often arise from how or what a business uses to function.
Reputational risk
Lastly, reputational risk can refer to security issues, cybersecurity, data privacy, intellectual property or copyright, and overall perception of your brand by the public.
How risk management and insurance can help
In the event a business finds themselves exposed to risk, insurance can provide financial assistance to help with damages or losses. Insurance alone, however, is not an effective risk management plan. A risk management plan may address risks that are uninsurable, such as loss of public trust, and provide tactics to employ in the event of exposure. Proactively assessing risk and taking action can help reduce the damage your company may face.
How managing risk may increase your bottom line
When you identify threats through a management plan, you can anticipate risk and understand how to reduce exposure. By having an effective risk management plan in place, you can ensure your company takes the proper steps to minimize damages. An effective risk strategy can also:
- Save resources (e.g. employees, time, capital)
- Protect its brand against ill-will
- Reduce or prevent legal action
- Protect employees from operational risks
- Environmental protection
- Prepare a business in the event operations are disrupted
- Clearly define insurance needs
While a business cannot eradicate all risks, a risk management plan can help protect your business against identified threats that may impact your ability to operate effectively. Doing so can make your business a more favourable risk to insure.
Speak with a Gifford Carr professional today for coverage advice and best practices specific to your industry that can help reduce your risk exposure by connecting with us today!
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