There are many business risks facing businesses day in and day out. When these risks materialize, they can have a significant impact on the health of the business and can quickly become an existential business threat.
There are, however, steps a business can take to mitigate the business risks they are faced with.
Risk mitigation is the process of identifying and evaluating risks that can affect a company’s health and bottom line. Through this analysis, the company can create a risk management strategy that includes the steps they need to take to both reduce the chances of the identified risks materializing and what steps they can take to reduce the impact if they do.
6 Business Risks and How to Mitigate Them
1. Cyber Security Business Risks
Cyber security risks and threats seem to be growing each year and take on many forms. Insufficient cyber protection software and poor employee training are just two of the many reasons businesses fall victim to cyber-attacks. If a company experiences a cyber attack, it can result in material losses due to impacts on operations or lawsuits and fines related to the personal information of their customers being stolen and available online. A cyberattack can significantly damage a company’s reputation and can lead to costs that will be difficult to recover from.
How to mitigate cyber security risks
To mitigate cyber security risks, it is critical to identify gaps in your existing security measures and work to bridge these gaps through industry best practices and training. Common cyber security risk mitigation activities include using data encryption, creating backups, regular employee cyber security training, keeping software and systems updated, using strong passwords, installing firewalls, and creating a cybersecurity policy that outlines the course of action your company will take in the event of a security breach. The policy should also outline incident response plans and security testing.
2. Reputational Business Risks
One of the greatest risks that can affect a business’s bottom line when it occurs is reputational risk. When a business’s reputation is damaged, it may result in lost customers and revenue, lead to lawsuits and can cause shareholders to lose faith in the direction of the business.
For example, when a company posts an offensive tweet or story online and it goes viral, it can result in overwhelming bad press and community anger towards the business. The realization of a reputational risk can quickly put a company out of business.
How to mitigate reputational risks
There are a few things you can do to mitigate the likelihood of having a reputational risk materialize. Keep your employees happy and treat them fairly, show off your company values, act ethically, and be vigilant about providing the best customer support possible. Assume someone is watching every decision you are making. Ask yourself if you would make the same decision if it were on the front page of the paper. If you wouldn’t, chances are you aren’t making the best decision, and it has the potential to hurt your company’s reputation.
3. Compliance Business Risks
One major risk a company faces is when they are in violation of government regulations, laws or standards, which can put the company at risk for fines, lawsuits, or even being shut down. This, in turn, can also lead to reputational damage.
A compliance risk can result in fines, punitive damages, and a loss of customers. Common compliance risks include employee behavior, data management, corruption, workplace health and safety, corruption, quality, environmental control, and more.
How to mitigate compliance risks
Continuously monitor your compliance efforts. Build a culture of ethics and get a complete understanding of what compliance risks your business is exposed to.
4. Operational Risks
Operational business risks occur when a business’s operating processes lead to situations or events that cost the business money or result in lost revenue. Operational risk can be caused by many things, including damage to a company’s physical assets, fraud by a third party, a natural disaster, employee errors, not producing the required product numbers, and machine breakdowns.
How to mitigate operational risks
To mitigate operational risks, you must make sure that all your equipment is working properly and that you have a backup plan if there is a failure. Ensure all software programs are up to date and that you secure your assets. Have business insurance, and be sure to stay up to date on both federal and state regulations related to your business. Lastly, put together a business continuity plan which details how your company will respond and recover from when specific operational risks materialize.
5. Human Risks
When employees fail to perform their duties in the workplace as instructed or needed, it can result in material financial losses. Examples of internal human risks include theft or fraud, as well as work conditions that create health issues, employee stress, and poor performance.
An example of external human risk is when an employee experiences issues outside of work that affect their productivity in the workplace, which can result in lower sales, lack of performance, or negligent use of equipment.
How to mitigate human risks
To mitigate human risk, organizations must provide a positive work environment and foster a culture that encourages the discussion of issues and motivates employees to do their best. Employee training should be structured and engaging, and leaders should foster a community of positivity, innovation, and growth.
6. Financial Risks
When companies don’t have a strong financial management system in place, it can seriously threaten the business’s financial well-being and ability to operate. This can occur when a business takes out a loan greater than it can afford, has poor cash management, or limited financial controls.
Conclusion: The Importance of Risk Mitigation
Risk mitigation is all about prevention, detection, deference, and response. Once you identify your business risks and want to ensure you’re well protected, you should hire a lawyer or business risk consultant to help you identify areas for further risk mitigation.
By understanding the business risks associated with running your business, you can protect your company from potential financial pitfalls and losses. Taking the necessary steps today can help provide peace of mind for a more successful tomorrow. Book a 30-minute consultation with Contiguglia Law Firm in Denver today to discuss your unique business liability needs.
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