Simple tweaks to your enterprise risk management might be the key to scaling.
Assessing potential threats to your business is everyone’s responsibility. You and your employees are all risk managers. Not just certain people.
But many business owners don’t think this way. They only integrate mitigation processes to specific people.
They also associate risks more as a negative thing. In reality, risks can be opportunities.
And that’s how businesses are leaving opportunities to scale their business faster.
In this article, we’ll go over what enterprise risk management really means for your business. Then, you’ll be able to come up with a better strategy formulation for you and your team.
What is Enterprise Risk Management?
It’s inevitable – problems will arise in your business no matter how effective your systems are.
Most companies think they know what enterprise risk management is. But they still end up feeling overwhelmed every time there’s an unexpected change.
So it’s best to overprepare for when something unfortunate happens. That way, you won’t be at such a loss and will pivot immediately.
Corporate Compliance Insights describes enterprise risk management as “the discipline, culture, and control structure an organization has in place to continuously improve its risk management capabilities in a changing business environment.”
In other words, it means that every company should integrate effective decision-making processes.
Here are some common examples of risks you may face in your company if you’re not:
- Keeping up with changes in your market.
- Knowing something that you should know about.
- Setting enough boundaries which can result in long-term harm for the company.
- Preparing for potential crises and will ignore the company’s readiness over time.
- Valuing how important it is to have a solid strategy for enterprise risk management.
Do any of these sound familiar to you?
If you answered yes, you now know what most businesses lack and what you can do to make yours stay afloat.
Why is Enterprise Risk Management Important?
Other than knowing how to make the right decisions, there’s a lot of other things involved too.
When things are going well in your company, you might forget about potential risks. Even when you think you’ve found success, there will still be problems. Remember, this isn’t something you can ever get away with.
Like Dan Lok, he almost went bankrupt twice after becoming a millionaire. How is that possible?
Well, like everyone else, there’s still so much to learn in your business. The world keeps changing, and we need to do our part to prepare ourselves for those changes.
Once you overcome one crisis after another, you’ll become more and more crisis-proof. But to get to that level, you need to be aware of what you still need to improve on.
According to the Institute of Internal Auditors, “Risk is the possibility of an event occurring that will have an impact on the achievement of objectives. Risk is measured in terms of impact and likelihood.”
So your team should develop a strategy for reaching your company’s maximum potential. When you know all the possible risks, you will have a clear understanding of how to minimize the impact.
Identifying, Evaluating, And Preparing…
Step one of enterprise risk management is identifying key risks within your company. This is how you’ll know how to respond with suitable decisions.
Whether it’s a risk with your productivity or profits, you’ll need to know the proper responses to every problem.
Believe it or not, only 36% of organizations have a formal enterprise risk management plan. And among those who know how to identify risks, they see a significant increase in:
- Brand and reputation
- Competitive differentiation
- Employee productivity
- Employee safety
- Operational efficiency
And instead of thinking that risks are bad, you can identify them as new opportunities.
For example, your team can improve their decision-making skills. They’ll be able to reduce costly mistakes and increase your company’s profits instead.
One way you can identify risks is to see what your competitors have done. Those who have been in the industry longer than you will have seen and experienced it all.
If there has been a company that made it to the news about a poor decision they’ve made, then you’ll know what to avoid.
Imagine if customers were complaining about your competitor’s packaging. You’ll then know not to repeat the same mistake. Instead, you’d think of opportunities on how to make your packaging better than theirs.
Here are 3 basic questions you can ask yourself to better protect your company:
- Should I do it? (Managing)
- Can I do it? (Mitigating)
- Did I do it? (Eliminating)
When you ask and answer key questions, you’ll develop an effective framework.
Risks You Should Keep A Lookout For
According to Aon, a leading global professional services firm, they listed out these top 10 global risks:
- Economic Shutdown/Slow Recovery
- Damage to Reputation/Brand
- Accelerated Rates of Change in Market Factors
- Business Interruption
- Increasing Competition
- Cash Flow/Liquidity Risk
- Regulatory/Legislative Changes
- Cyber Attacks/Data Breach
- Commodity Price Risk
- Failure to Innovate/Meet Customer Needs
Other than these risks, there are also other risks that can affect you no matter how small or big your company is. Some may even be damaging enough to close down your business.
We can keep going on and on about risks. But the bottom line is that anything you can think of can become a risk in the future.
Here are 5 main types of risks you should keep a lookout for:
- Human (alcohol/drug abuse or illness/injury risks)
- Location (hazards and natural disaster risks)
- Physical (building and hazardous material risks)
- Strategic (research/development or financial risks)
- Technology (power outage or telephone/communications risks)
After you identify your risks, you’ll need to prioritize them based on their probability. The best way to do this is to rate them all on a scale of how likely or unlikely of a chance they’ll occur.
If you want to ensure you tackle every possible risk, it’ll be a wise decision to hire a risk management consultant. This investment strategy will determine which risks insurance can help cover.
Risk insurance could be the best prevention too. This includes background checks, employee training, and maintenance.
A Strong Framework Makes The Dreamwork
To monitor and mitigate all risks that happen in your company, you’ll need to design the right framework for you.
A global pandemic or a cyberattack can happen as soon as tomorrow. That’s why you need to prepare for it now.
Like COVID-19, for example, many brick and mortar stores got hit hard by the pandemic. That’s because nobody could go outside and shop around since every store got shut down. So those who didn’t adapt to selling online earlier may have had to close their business for good.
If you have predicted such risk earlier, you’d see that there’s an opportunity or more sales for you online. Especially nowadays, more consumers prefer shopping online because of the convenience.
With enterprise risk management, it goes hand in hand as you run your business. You can apply it to your policies, technology, and workflow. Your team can calculate risks and improve the quality of their leadership skills too.
You can leverage risks and grow your company while gaining a competitive advantage. That’ll mean more results and bigger profits for you.
Once you have a framework in place, you’ll need to keep in mind to conduct audits too. Having audits will ensure your company of the best external and internal responses.
Here are some of the key tips to a successful enterprise risk management framework:
Transparency Of All Communications
At the beginning of this article, we said that you and your employees are all risk managers. So it’s not just you or whoever’s in charge of your team.
Although leaders should create the framework, you should also involve your team.
Being transparent of all communications with your team is critical. It keeps everyone on the same page and clear of what their responsibilities are.
When you achieve this, you’ll create a positive work environment that aligns with your vision. They’ll work together to keep a lookout for any possible threats that could harm your company.
We know that being a business owner is already stressful enough. Plus, you only have one set of eyes to oversee the whole company. So to keep your company in its top shape, you’ll have to trust your team to be your extra pair of eyes.
It doesn’t matter what level your employees are at. Either the person can be a leader or not, everyone should know about risk strategy. They can track and report procedures to keep improving policies. That way, you’ll know how to make the best decisions when an actual crisis exists.
Integrating Mitigation Processes By Leveraging Technology
82% of companies who have experienced unplanned downtime can cost them as much as $260,000 an hour.
One of the most common reasons is because of equipment failure. And that’s why leveraging technology can help reduce these risks.
There are many ways companies can apply technology to their workflow. To save time, technology can automate processes and give more accurate results too.
This will prevent human errors that may affect other operations within your company. Also, your employees could make more use of their time instead.Computers will overtake humans with AI within the next 100 years. When that happens, we need to make sure the computers have goals aligned with ours. - Stephen Hawking Click To Tweet
More companies are implementing AI (artificial intelligence) now so that technology can do the work that humans don’t need to do.
If you want to grow your company fast, the easiest way to do that is to automate your functions. There will be fewer mistakes and more time for you to focus on crucial things that move the needle.
Plan, Test, & Repeat
After you developed your framework, it doesn’t mean you should set it and forget it later on.
Enterprise risk management will need you to keep refining it. Like how the world is always changing, your company changes too. That’s the only way you’ll be able to keep up with the market and not fall behind.
The best strategies are from lots of planning and testing. We can’t stress enough how important it is to keep testing. Because when you are aware of your data, you’ll know how to make the right decisions easier.
Instead of second-guessing yourself, why not be confident with your decisions every time?
As a leader, you’ll need to take advantage of your data. It’ll tell you how well you’re doing and what you still need to improve on.
Business owners don’t have the time to track everything that goes on with the business. So they’ll have to rely on data to make effective decisions to move the company further.
If there’s a lack of information, it could cost the company mistakes and money down the road. That’s a big risk to have and one that most business owners don’t want to take. So, the goal should be to always outperform the data you already have.
And with your data, you can determine which tools you need or the best people to hire. This will make your team a lot stronger when they’re equipped with the right resources.
One way to understand your tests is to get as much information as possible. You can think of how it’s collected, integrated, analyzed, and translated into results. It’s better to spend time on this early on rather than paying for the price of mistakes down the road.
You could also plan out scenarios of what risks might happen in the workplace. It’s better to imagine what the possibilities might be than to have the unknown happen.
The Value Of Evaluating
After the planning and testing processes, you can’t forget about the evaluation too.
When you’re evaluating the results, the goal is to see which risks are significant. Reducing risks takes effort, energy, and time. You’ll need to find out how much attention each risk needs and what other resources are necessary.
An effective way to dive deep with your evaluation is by asking yourself “So what?” You’ll be able to measure how well risks are being managed and what methods to use.
Especially if you’ve faced a crisis before, evaluating is necessary for your success.
While you’re evaluating, your team could go over these questions:
- What happened?
- Who is affected?
- What was the financial loss?
- How can you close the gap for a better plan?
The more questions asked, the more clarity you’ll get out of the situation. Keep in mind, you have control to take over risk exposure for your company.
And if you can dissect every little detail of what went wrong, it’ll help revise your framework better. Your company will be better prepared next time. But let’s hope that there won’t be a second time.
Every great company does this. They test what has worked and what didn’t work for them. Then they’ll continue to seek improvement. For Dan Lok, the more he improves, the more profitable his businesses are.
If something is failing in your business, you should stop giving it attention. You’ll have to realize that making a bad idea work will cause worse results. And the earlier you notice this, the faster you’ll save yourself from wasted time.
Enhance Enterprise Risk Management With Finesse
There shouldn’t be any added stress when running a company. In fact, the reason why you hired employees in the first place is to take the load of work off your shoulders. That way, you can focus on scaling your company more.
There are many factors that contribute to scaling your company. Your enterprise risk management could be a major one of them.
You see, not a lot of businesses are focusing enough on the risks they have. Instead, they’re always focusing on adding new things to their company’s growth. And when you’re adding more things or people to your company, it means you could be adding more risks too.
But risks aren’t always a bad thing. There’s a lot of money left on the table when you don’t see risks more as opportunities.
When you create the right framework, it will go hand in hand with your company’s operations. It will help you and your team make better decisions as well as prevent mistakes down the road.
This is something that Dan Lok coaches in his Dragon 100™ advisory board. In it, there are other like-minded A-players who get together and plan strategies that help you scale faster.
If this is something that interests you, Dan can help you develop a step-by-step framework to reduce risks. Since he has made years of costly mistakes already, he can show you the right path to take and eliminate all the guesswork.
So if you want to scale your business in a short amount of time, Dragon 100™ might be for you…