risk factor business plan

• Search Search Please fill out this field.

What Is Business Risk?

Understanding business risk, reducing business risk, the bottom line, what is business risk definition, factors, and examples.

Business risk is the exposure a company or organization has to factor(s) that will lower its profits or lead it to fail. Anything that threatens a company's ability to achieve its financial goals is considered a business risk . There are many factors that can converge to create business risk. Sometimes it is a company's top leadership or management that creates situations where a business may be exposed to a greater degree of risk.

However, sometimes the cause of risk is external to a company. Because of this, it is impossible for a company to completely shelter itself from risk. However, there are ways to mitigate the overall risks associated with operating a business ; most companies accomplish this by adopting a risk management strategy.

Key Takeaways

• Business risk is any exposure a company or organization has to factor(s) that may lower its profits or cause it to go bankrupt.
• The sources of business risk are varied but include changes in consumer taste and demand, the state of the overall economy, and government rules and regulations.
• Risk can be created by external factors that the business doesn't control, as well as by decisions made within the company's management or executive team.
• While companies may not be able to completely avoid business risk, they can take steps to mitigate its impact, including the development of a strategic risk plan.

Investopedia / Xiaojie Liu

When a company experiences a high degree of business risk, it may impair its ability to provide investors and stakeholders with adequate returns. For example, the CEO of a company may make certain decisions that affect its profits, or the CEO may not accurately anticipate certain events in the future, causing the business to incur losses or fail.

Business risk is influenced by a number of different factors including:

• Consumer preferences, demand, and sales volumes
• Per-unit price and input costs
• Competition
• The overall economic climate
• Government regulations

A company with a higher amount of business risk may decide to adopt a capital structure with a lower debt ratio to ensure that it can meet its financial obligations at all times. With a low debt ratio, when revenues drop the company may not be able to service its debt (and this may lead to bankruptcy). On the other hand, when revenues increase, a company with a low debt ratio experiences larger profits and is able to keep up with its obligations.

To calculate risk, analysts use four ratios: contribution margin, operation leverage effect, financial leverage effect, and total leverage effect. For more complex calculations, analysts can incorporate statistical methods.

Business risk usually occurs in one of four ways: strategic risk, compliance risk, operational risk, and reputational risk .

Types of Business Risk

Strategic risk.

Strategic risk arises when a business does not operate according to its business model or plan. When a company does not operate according to its business model, its strategy becomes less effective over time, and the company may struggle to reach its defined goals.

For example, imagine ABC Store is a big box store that strategically positions itself as a low-cost provider for working-class shoppers. Its main competitor is XYZ Store, which is seen as a destination for more middle-class consumers. However, if XYZ decides to undercut ABC's prices, this becomes a strategic risk for ABC.

Compliance Risk

The second form of business risk is compliance risk, sometimes known as regulatory risk. Compliance risk primarily arises in industries and sectors that are highly regulated. For example, in the wine industry, there is a three-tier system of distribution that requires wholesalers in the U.S. to sell wine to a retailer, who then sells it to consumers. This system prohibits wineries from selling their products directly to retail stores in some states.

However, there are many U.S. states that do not have this type of distribution system; compliance risk arises when a brand fails to understand the individual requirements of the state in which it is operating. In this situation, a brand risks becoming non-compliant with state-specific distribution laws and may face fines or other legal action.

Operational Risk

The third type of business risk is operational risk . This risk arises from within the corporation, especially when the day-to-day operations of a company fail to perform. For example, in 2012, the multinational bank HSBC faced a high degree of operational risk and as a result, incurred a large fine from the U.S. Department of Justice when its internal anti-money laundering operations team was unable to adequately stop money laundering in Mexico.

Reputational Risk

Any time a company's reputation is ruined, either by an event that was the result of a previous business risk or by a different occurrence, it runs the risk of losing customers and its brand loyalty suffering. The reputation of HSBC faltered in the aftermath of the fine it was levied for poor anti-money laundering practices.

Business risk cannot be entirely avoided because it is unpredictable. However, there are many strategies that businesses employ to cut back the impact of all types of business risk, including strategic, compliance, operational, and reputational risk.

The first step that brands typically take is to identify all sources of risk in their business plan . These aren't just external risks—they may also come from within the business itself. Taking action to cut back the risks as soon as they present themselves is key. Management should come up with a plan in order to deal with any identifiable risks before they become too great.

Finally, most companies adopt a risk management strategy . This can be done either before the business begins operations or after it experiences a setback. Ideally, a risk management strategy will help the company be better prepared to deal with risks as they present themselves. The plan should have tested ideas and procedures in place in the event that risk presents itself.

Once the management of a company has come up with a plan to deal with the risk, it's important that they take the extra step of documenting everything in case the same situation arises again. After all, business risk isn't static—it tends to repeat itself during the business cycle. By recording what led to risk the first time, as well as the processes used to mitigate it, the business can implement those strategies a second time with greater ease. This reduces the timeframe in which unaddressed risk can impact the business, as well as lowering the cost of risk management.

What Are the 4 Main Types of Business Risk?

The four main types of risk that businesses encounter are strategic, compliance (regulatory), operational, and reputational risk. These risks can be caused by factors that are both external and internal to the company.

Why Is Risk Management Important In Business?

Businesses face a great deal of uncertainty in their operations, much of it outside their control. This uncertainty creates risk that can jeopardize not both a company's short-term profits and long-term existence. Because risk is unavoidable, risk management is an important part of running a business. When a business has a thorough and carefully created risk management plan in place, and when they are able to iterate on that plan to deal with new an unexpected risks, the business is more likely to survive the impact of both internal and external risk.

What Are Internal Risks That Can Impact a Business?

Internal risks that can impact a business often come from decisions made by the management or executive team in pursuit of growth. These decisions can create physical or tangible risks. For example, on-site risks such as fires, equipment malfunctions, or hazardous materials can jeopardize production, endanger employees, and lead to legal or financial penalties. Policies that guarantee a safe working environment would, in this instance, be an effective strategy for managing internal risks.

In business, risks are factors that an organization encounters that may lower its profits or cause it to go fail. Sources of risk can be external, such as changes in what consumers want, changes in competitor behavior, external economic factors, and government rules or regulations. They can also be internal such as decisions made by management or the executive team.

No company can completely avoid risks, especially because many risk factors are external. However, businesses can put risk management strategies into place. These strategies can be used both to reduce risk and to mitigate the impact of risks when they arise. By documenting the sources of risk and creating a strategic plan that can be repeated, businesses can reduce the overall impact of risk and deal with it more efficiently and effectively in the future.

United State Department of Justice. " HSBC Holdings Plc. and HSBC Bank USA N.A. Admit to Anti-Money Laundering and Sanctions Violations, Forfeit $1.256 Billion in Deferred Prosecution Agreement ."

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

How to Highlight Risks in Your Business Plan

Tallat Mahmood

5 min. read

Updated October 25, 2023

One of the areas constantly dismissed by business owners in their business plan is an articulation of the risks in the business.

This either suggests you don’t believe there to be any risks in your business (not true), or are intentionally avoiding disclosing them.

Either way, it is not the best start to have with a potential funding partner. In fact, by dismissing the risks in your business, you actually make the job of a lender or investor that much more difficult.

Why a funder needs to understand your business’s risks:

Funding businesses is all about risk and reward.

Whether it’s a lender or an investor, their key concern will be trying to balance the risks inherent in your business, versus the likelihood of a reward, typically increasing business value. An imbalance occurs when entrepreneurs talk extensively about the opportunities inherent in their business, but ignore the risks.

The fact is, all funders understand that risks exist in every business. This is just a fact of running a business. There are risks that exist with your products, customers, suppliers, and your team. From a funder’s perspective, it is important to understand the nature and size of risks that exist.

• There are two main reasons why funders want to understand business risks:

Firstly, they want to understand whether or not the key risks in your business are so fundamental to the investment proposition that it would prevent them from funding you.

Some businesses are not at  the right stage to receive external funding  and placate funder concerns. These businesses are best off dealing with key risk factors prior to seeking funding.

The second reason why lenders and investors want to understand the risk in your business is so that they can structure a funding package that works best overall, despite the risk.

In my experience, this is an opportunity that many business owners are wasting, as they are not giving funders an opportunity to structure deals suitable for them.

Here’s an example:

Assume your business is  seeking equity funding,  but has a key management role that needs to be filled. This could be a key business risk for a funder.

Highlighting this risk shows that you are aware of the appointment need, and are putting plans in place to help with this key recruit. An investor may reasonably decide to proceed with funding, but the funding will be released in stages. Some will be released immediately and the remainder will be after the key position has been filled.

The benefit of highlighting your risks is that it demonstrates to investors that you understand the danger the risks pose to your company, and are aware that it needs to be dealt with. This allows for a frank discussion to take place, which is more difficult to do if you don’t acknowledge this as a problem in the first place.

Ultimately, the starting point for most funders is that they  want  to invest in you, and  want  to validate their initial interest in you.

Highlighting your business risks will allow the funder to get to the nub of the problem, and give them a better idea of how they may structure their investment in order to make it work for both parties. If they are unsure of the risks or cannot get clear explanations from the team, it is unlikely they will be forthcoming when it comes to finding ways to make a potential deal work.

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

• The right way to address business risks:

The main reason many business owners don’t talk about business risks with potential funders is because they don’t want to highlight the weaknesses in their business.

This is a fair concern to have. However, there is a right way to address business risk with funders, without turning lenders and investors off.

The solution is to focus on how you  mitigate the risks.  

In other words, what are the steps you are taking in your business as a direct reaction to the risks that you have identified? This is very powerful in easing funder fears, and in positioning you as someone who has a handle on their business.

For example, if a business risk you had identified was a high level of customer concentration, then a suitable mitigation plan would be to market your products or services targeting new clients, as opposed to focusing all efforts on one client.

Having net profit margins that are lower than average for your market would raise eyebrows and be considered a risk. In this instance, you could demonstrate to funders the steps you are putting in place over a period of time to help increase those margins to at least market norms for your niche.

The process of highlighting risks—and, more importantly, outlining key mitigating actions—not only demonstrates honesty, but also a leadership quality in solving the problems in your business. Lenders and investors want to see both traits.

• The impact on your credibility:

Any lender or investor  backs the leadership team  of a business first, and the business itself second.

This is because they realize that it is you, the management team, who will ultimately deliver value and grow the business for the benefit for all. As such, it is imperative that they have the right impression about you.

The consequence of highlighting business risks in your business plan with mitigations is that it provides funders a real insight into you as a business leader. It demonstrates that not only do you have an understanding of their need to understand risk in your business, but you also appreciate that minimizing that risk is your job.

This will have a massive impact on your credibility as a business owner and management team. This impact is more acute when compared to the hundreds of businesses they will meet that omit discussing the risks in their business.

The fact is, funders have seen enough businesses and business plans in all sectors to instinctively know what risks to expect. It’s just more telling if they hear it from you first.

• What does this mean for you going forward?

Funders rely on you to deliver on your inherent promise to add value to your business for all stakeholders. The weight of this promise becomes much stronger if they can believe in the character of the team, and that comes from your credibility.

A business plan that discusses business risks and mitigations is a much more complete plan, and will increase your chances of securing funding.

Not only that, but highlighting the risks your business faces also has a long-term impact on your character and credibility as a business leader.

Tallat Mahmood is founder of The Smart Business Plan Academy, his flagship online course on building powerful business plans for small and medium-sized businesses to help them grow and raise capital. Tallat has worked for over 10 years as a small and medium-sized business advisor and investor, and in this period has helped dozens of businesses raise hundreds of millions of dollars for growth. He has also worked as an investor and sat on boards of companies.

Table of Contents

• Why a funder needs to understand your business’s risks:

Related Articles

4 Min. Read

How to Create an Expense Budget

10 Min. Read

What Is a Balance Sheet? Definition, Formulas, and Example

6 Min. Read

How to Forecast Sales for a Subscription Business

11 Min. Read

How to Create a Sales Forecast

The Bplans Newsletter

The Bplans Weekly

Subscribe now for weekly advice and free downloadable resources to help start and grow your business.

We care about your privacy. See our privacy policy .

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

This free Notion document contains the best 100+ resources you need for building a successful startup, divided in 4 categories: Fundraising, People, Product, and Growth.

This free eBook goes over the 10 slides every startup pitch deck has to include, based on what we learned from analyzing 500+ pitch decks, including those from Airbnb, Uber and Spotify.

This free sheet contains 100 accelerators and incubators you can apply to today, along with information about the industries they generally invest in.

This free sheet contains 100 VC firms, with information about the countries, cities, stages, and industries they invest in, as well as their contact details.

This free sheet contains all the information about the top 100 unicorns, including their valuation, HQ's location, founded year, name of founders, funding amount and number of employees.

12 Types of Business Risks and How to Manage Them

Description

Everything you need to raise funding for your startup, including 3,500+ investors, 7 tools, 18 templates and 3 learning resources.

Information about the countries, cities, stages, and industries they invest in, as well as their contact details.

List of 250 startup investors in the AI and Machine Learning industries, along with their Twitter, LinkedIn, and email addresses.

List of startup investors in the BioTech, Health, and Medicine industries, along with their Twitter, LinkedIn, and email addresses.

List of startup investors in the FinTech industry, along with their Twitter, LinkedIn, and email addresses.

90% of startups fail .

Thanks to the explosion of the digital economy, business founders have plenty of opportunities that they can tap into to build a winning business.

Unfortunately, there is a myriad of challenges your new business has to navigate through. These risks are inevitable, and they are a part of life in the business world.

However, without the right plan, strategy, and instruments, your business might be drowned by these challenges.

Therefore, we have created this guide to show you how can your business utilize risk management to succeed in 2022.

There are many types of startup and business risks that entrepreneurs can expect to encounter in 2022. Most of these threats are prevalent in the infancy stages of a business.

To know what you’ll be up against, here is a breakdown of the 12 most common threats.

12 Business Risks to Plan For

1) economic risks.

Failure to acquire adequate funding for your business can damage the chances of your business succeeding.

Before a new business starts making profits, it needs to be kept afloat with money. Bills will pile up, suppliers will need payments, and your employees will be expecting their salaries.

To avoid running into financial problems sooner or later, you need to acquire enough funds to shore up your business until it can support itself.

On the side, world and business country's economic situation can change either positively or negatively, leading to a boom in purchases and opportunities or to a reduction in sales and growth.

If your business is up and running, a great way to limit the effect of negative economic changes is to maintain steady cash flow and operate under the lean business method.

Here's an article from a founder explaining how he set up a lean budget on his $400k/year online business.

2) Market Risks

Misjudging market demand is one of the primary reasons businesses fail .

To avoid falling into this trap, conduct detailed research to understand whether you will find a ready market for what you want to sell at the price you have set.

Ensure your business has a unique selling point, and make sure what you offer brings value to the buyers.

To know whether your product will suit the market, do a survey, or get opinions from friends and potential customers.

Building a Minimum Viable Product of that business idea you've had is the recommendations made by most entrepreneurs.

This site, for example, was built in just 3 weeks and launched into the market to see if there was any interest in the type of content we offered.

The site was ugly, had little content and lacked many features. Yet, +7,700 users visited it within the first week, which made us realize we should keep working on this.

90% of startups fail. Learn how to not to with our weekly guides and stories. Join 40,000+ founders.

3) Competitive Risks

Competition is a major business killer that you should be wary of.

Before you even start planning, ask yourself whether you are venturing into an oversaturated market.

Are there gaps in the market that you can exploit and make good money?

If you have an idea that can give you an edge, register it. This will prevent others from copying your product, re-innovating it, and locking you out of what you started.

Competitive risks are also those actions made by competitors that prevent a business from earning more revenue or having higher margins.

4) Execution Risks

Having an idea, a business plan, and an eager market isn’t enough to make your startup successful.

Most new companies put a lot of effort into the initial preparation and forget that the execution phase is equally important.

First, test whether you can develop your products within budget and on time. Also, check whether your product will function as intended and whether it’s possible to distribute it without taking losses.

5) Strategic Risks

Business strategies can lead to the growth or decline of a company.

Every strategy involves some risk, as time & resources are generally involved to put them into practice.

Strategic risk in the chance that an implemented strategy, therefore, results in losses.

If, for example, the Marketing Department of a company implements a content marketing strategy and a lot of months, time & money later the business doesn't see any ROI, this becomes a strategic risk.

6) Compliance Risks

Compliance risks are those losses and penalties that a business suffers for not complying with countries' and states' regulations & laws.

There are some industries that are highly-regulated so the compliance risks of businesses within them are super high.

For example, in May 2018, the EU Commission implemented the General Data Protection Regulation (GDPR), a law in privacy and data protection in the EU, which affected millions of websites.

Those websites that weren't adapted to comply with this new rule, were fined.

7) Operational Risks

Operational risks arise when the day-to-day running of a company fail to perform.

When processes fail or are insufficient, businesses lose customers and revenue and their reputation gets ruined.

One example can be customer service processes. Customers are becoming every day less willing to wait for support (not to mention, receive bad quality one).

If a business customer service team fails or delays to solve customer's issues, these might find their solution in the business competitors.

8) Reputational Risks

Reputational risks arise when a business acts in an immoral and discourteous way.

This led to customer complaints and distrust towards the business, which means for the company a big loss of sales and revenue.

With the rise of social networks, reputational risks have become one of the main concerns for businesses.

Virality is super easy among Twitter so a simple unhappy customer can lead to a huge bad press movement for the company.

A recent example is the Away issue with their toxic work environment, as a former employee reported in The Verge .

The issue brought lots of critics within social networks which eventually led the CEO, Steph Korey, to step aside from the startup ( she seems to be back, anyway 🤷‍♂️! ).

9) Country Risks

When a business invests in a new country, there is a high probability it won't work.

A product that is successful in one market won't necessarily be in another one, especially when people within them are so different in cultures, climates, tastes backgrounds, etc.

Country risk is the existing failure probability businesses investing in new countries have to deal with.

Changes in exchange rates, unstable economic situations and moving politics are three factors that make these country risks be even more delicate.

10) Quality Risks

When a business develops a product or service that fails to meet customers' needs and quality expectations, the chance these customers will ever buy again is low.

In this way, the business loses future sales and revenue. Not to mention that some customers will ask for refunds, increasing business costs, as well as publicly criticize the company's products, leading to bad reputation (and a viral cycle that means even less $$ for the business).

11) Human Risk

Hiring has its benefits but also its risks.

Employees themselves involve a huge risk for a business, as they become to represent the company through how they work, mistakes committed, the public says and interactions with customers & suppliers,

A way to deal with human risk is to train employees and keep a motivated workforce. Yet, the risk will continue to exist.

12) Technology Risk

Security attacks, power outrage, discontinued hardware, and software, among other technology issues, are the events that form part of the technology risk.

These issues can lead to a loss of money, time and data, which has many connections with the previously mentioned risks.

Back-ups, antivirus, control processes, and data breach plans are some of the ways to deal with this risk.

How Businesses Can Use Risk Management To Grow Business

To mitigate any future threats, you need to prepare a comprehensive risk management plan.

This plan should detail the strategy you will use to deal with the specific challenges your business will encounter. Here’s what to do.

1) Identify Risks

Every business encounters a different set of challenges.

Before mapping the risks, analyze your business and note down its key components such as critical resources, important services or products, and top talent.

2) Record Risks

Once risks have been identified, you need to assess and document the threats that can affect each component.

Identify any warning signs or triggers of that recorded risk, also.

3) Anticipate

The best way to beat a threat is to detect and prepare for it in advance.

Once you know your business can be affected by a certain scenario, develop steps that you will take to stop the risk or to blunt its effects.

4) Prioritize Risks

Not all types of business risk have the same effect. Some can bring your startup to its knees, while others will only cause minimal effects.

To keep your business alive, start by putting in place measures that protect the vital functions from the most severe and most probable risks.

5) Have a Backup Plan

For every risk scenario, have at least two plans for countering the threat before it arrives.

The strategy you put in place should be in line with the current technology and trends.

Ensure your communicate these measures with all your team members.

6) Assign Responsibilities

When communicating measures with the team, assign responsibilities for each member in case any of the recorded risks affect the business.

These members should also be responsible for controlling the risks every certain time and maintaining records about them.

What is a Business Risk?

The term "business risk" refers to the exposure businesses have to factors that can prevent them from achieving their set financial goals.

This exposure can come from a variety of situations, but they can be classified into two:

• Internal factors: The risk comes from sources within the company, and they tend to be related to human, technological, physical or operational factors, among others.
• External factors: The risk comes from regulations/changes affecting the whole country/economy.

Any of these factors led to the business being unable to return investors and stakeholders the adequate amounts.

What Is Risk Management?

Risk management is a practice where an entrepreneur looks for potential risks that their business may face, analyzes them, and takes action to counter them.

The steps you take can eliminate the threat, control it, or limit the effects.

A risk is any scenario that harms your business. Risks can emanate from a wide variety of sources such as financial problems, management errors, lawsuits, data loss, cyber-attacks, natural calamities, and theft.

The risk landscape changes constantly, therefore you need to know the latest threats.

By setting up a risk management plan, your business can save money and time, which in some cases can be the determinant to keep your startup in business.

Not to mention, on the side, that risk management plans tend to make managers feel more confident to carry out business decisions, especially the risky ones, which can put their startups in a huge competitive advantage.

Wrapping Up

Becoming your own boss is one of the most rewarding things you can do.

However, launching a business is not a walk in the park; risks and challenges lurk around every corner.

If you are planning to establish a new business come 2022, make sure you secure its future by creating a broad risk management plan.

90% of startups fail. Learn how not to with our weekly guides and stories. Join +40,000 other startup founders!

An all-in-one newsletter for startup founders, ruled by one philosophy: there's more to learn from failures than from successes.

100+ resources you need for building a successful startup, divided into 4 categories: Fundraising, People, Product, and Growth.

• Business Essentials
• Leadership & Management
• Credential of Leadership, Impact, and Management in Business (CLIMB)
• Entrepreneurship & Innovation
• Digital Transformation
• Finance & Accounting
• Business in Society
• For Organizations
• Support Portal
• Media Coverage
• Founding Donors
• Leadership Team

• Harvard Business School →
• HBS Online →
• Business Insights →

Business Insights

Harvard Business School Online's Business Insights Blog provides the career insights you need to achieve your goals and gain confidence in your business skills.

• Career Development
• Communication
• Decision-Making
• Earning Your MBA
• Negotiation
• News & Events
• Productivity
• Staff Spotlight
• Student Profiles
• Work-Life Balance
• AI Essentials for Business
• Alternative Investments
• Business Analytics
• Business Strategy
• Business and Climate Change
• Design Thinking and Innovation
• Digital Marketing Strategy
• Disruptive Strategy
• Economics for Managers
• Entrepreneurship Essentials
• Financial Accounting
• Global Business
• Launching Tech Ventures
• Leadership Principles
• Leadership, Ethics, and Corporate Accountability
• Leading Change and Organizational Renewal
• Leading with Finance
• Management Essentials
• Negotiation Mastery
• Organizational Leadership
• Power and Influence for Positive Impact
• Strategy Execution
• Sustainable Business Strategy
• Sustainable Investing
• Winning with Digital Platforms

What Is Risk Management & Why Is It Important?

• 24 Oct 2023

Businesses can’t operate without risk. Economic, technological, environmental, and competitive factors introduce obstacles that companies must not only manage but overcome.

According to PwC’s Global Risk Survey , organizations that embrace strategic risk management are five times more likely to deliver stakeholder confidence and better business outcomes and two times more likely to expect faster revenue growth.

If you want to enhance your job performance and identify and mitigate risk more effectively, here’s a breakdown of what risk management is and why it’s important.

Access your free e-book today.

What Is Risk Management?

Risk management is the systematic process of identifying, assessing, and mitigating threats or uncertainties that can affect your organization. It involves analyzing risks’ likelihood and impact, developing strategies to minimize harm, and monitoring measures’ effectiveness.

“Competing successfully in any industry involves some level of risk,” says Harvard Business School Professor Robert Simons, who teaches the online course Strategy Execution . “But high-performing businesses with high-pressure cultures are especially vulnerable. As a manager, you need to know how and why these risks arise and how to avoid them.”

According to Strategy Execution , strategic risk has three main causes:

• Pressures due to growth: This is often caused by an accelerated rate of expansion that makes staffing or industry knowledge gaps more harmful to your business.
• Pressures due to culture: While entrepreneurial risk-taking can come with rewards, executive resistance and internal competition can cause problems.
• Pressures due to information management: Since information is key to effective leadership , gaps in performance measures can result in decentralized decision-making.

These pressures can lead to several types of risk that you must manage or mitigate to avoid reputational, financial, or strategic failures. However, risks aren’t always obvious.

“I think one of the challenges firms face is the ability to properly identify their risks,” says HBS Professor Eugene Soltes in Strategy Execution .

Therefore, it’s crucial to pinpoint unexpected events or conditions that could significantly impede your organization’s business strategy .

Related: Business Strategy vs. Strategy Execution: Which Course Is Right for Me?

According to Strategy Execution , strategic risk comprises:

• Operations risk: This occurs when internal operational errors interrupt your products or services’ flow. For example, shipping tainted products can negatively affect food distribution companies.
• Asset impairment risk: When your company’s assets lose a significant portion of their current value because of a decreased likelihood of receiving future cash flows . For instance, losing property assets, like a manufacturing plant, due to a natural disaster.
• Competitive risk: Changes in the competitive environment can interrupt your organization’s ability to create value and differentiate its offerings—eventually leading to a significant loss in revenue.
• Franchise risk: When your organization’s value erodes because stakeholders lose confidence in its objectives. This primarily results from failing to control any of the strategic risk sources listed above.

Understanding these risks is essential to ensuring your organization’s long-term success. Here’s a deeper dive into why risk management is important.

4 Reasons Why Risk Management Is Important

1. protects organization’s reputation.

In many cases, effective risk management proactively protects your organization from incidents that can affect its reputation.

“Franchise risk is a concern for all businesses,“ Simons says in Strategy Execution . “However, it's especially pressing for businesses whose reputations depend on the trust of key constituents.”

For example, airlines are particularly susceptible to franchise risk because of unforeseen events, such as flight delays and cancellations caused by weather or mechanical failure. While such incidents are considered operational risks, they can be incredibly damaging.

In 2016, Delta Airlines experienced a national computer outage, resulting in over 2,000 flight cancellations. Delta not only lost an estimated $150 million but took a hit to its reputation as a reliable airline that prided itself on “canceling cancellations.”

While Delta bounced back, the incident illustrates how mitigating operational errors can make or break your organization.

2. Minimizes Losses

Most businesses create risk management teams to avoid major financial losses. Yet, various risks can still impact their bottom lines.

A Vault Platform study found that dealing with workplace misconduct cost U.S. businesses over $20 billion in 2021. In addition, Soltes says in Strategy Execution that corporate fines for misconduct have risen 40-fold in the U.S. over the last 20 years.

One way to mitigate financial losses related to employee misconduct is by implementing internal controls. According to Strategy Execution , internal controls are the policies and procedures designed to ensure reliable accounting information and safeguard company assets.

“Managers use internal controls to limit the opportunities employees have to expose the business to risk,” Simons says in the course.

One company that could have benefited from implementing internal controls is Volkswagen (VW). In 2015, VW whistle-blowers revealed that the company’s engineers deliberately manipulated diesel vehicles’ emissions data to make them appear more environmentally friendly.

This led to severe consequences, including regulatory penalties, expensive vehicle recalls, and legal settlements—all of which resulted in significant financial losses. By 2018, U.S. authorities had extracted $25 billion in fines, penalties, civil damages, and restitution from the company.

Had VW maintained more rigorous internal controls to ensure transparency, compliance, and proper oversight of its engineering practices, perhaps it could have detected—or even averted—the situation.

Related: What Are Business Ethics & Why Are They Important?

3. Encourages Innovation and Growth

Risk management isn’t just about avoiding negative outcomes. It can also be the catalyst that drives your organization’s innovation and growth.

“Risks may not be pleasant to think about, but they’re inevitable if you want to push your business to innovate and remain competitive,” Simons says in Strategy Execution .

According to PwC , 83 percent of companies’ business strategies focus on growth, despite risks and mixed economic signals. In Strategy Execution , Simons notes that competitive risk is a challenge you must constantly monitor and address.

“Any firm operating in a competitive market must focus its attention on changes in the external environment that could impair its ability to create value for its customers,” Simons says.

This requires incorporating boundary systems —explicit statements that define and communicate risks to avoid—to ensure internal controls don’t extinguish innovation.

“Boundary systems are essential levers in businesses to give people freedom,” Simons says. “In such circumstances, you don’t want to stifle innovation or entrepreneurial behavior by telling people how to do their jobs. And if you want to remain competitive, you’ll need to innovate and adapt.”

Netflix is an example of how risk management can inspire innovation. In the early 2000s, the company was primarily known for its DVD-by-mail rental service. With growing competition from video rental stores, Netflix went against the grain and introduced its streaming service. This changed the market, resulting in a booming industry nearly a decade later.

Netflix’s innovation didn’t stop there. Once the steaming services market became highly competitive, the company shifted once again to gain a competitive edge. It ventured into producing original content, which ultimately helped differentiate its platform and attract additional subscribers.

By offering more freedom within internal controls, you can encourage innovation and constant growth.

4. Enhances Decision-Making

Risk management also provides a structured framework for decision-making. This can be beneficial if your business is inclined toward risks that are difficult to manage.

By pulling data from existing control systems to develop hypothetical scenarios, you can discuss and debate strategies’ efficacy before executing them.

“Interactive control systems are the formal information systems managers use to personally involve themselves in the decision activities of subordinates,” Simons says in Strategy Execution . “Decision activities that relate to and impact strategic uncertainties.”

JPMorgan Chase, one of the most prominent financial institutions in the world, is particularly susceptible to cyber risks because it compiles vast amounts of sensitive customer data . According to PwC , cybersecurity is the number one business risk on managers’ minds, with 78 percent worried about more frequent or broader cyber attacks.

Using data science techniques like machine learning algorithms enables JPMorgan Chase’s leadership not only to detect and prevent cyber attacks but address and mitigate risk.

Start Managing Your Organization's Risk

Risk management is essential to business. While some risk is inevitable, your ability to identify and mitigate it can benefit your organization.

But you can’t plan for everything. According to the Harvard Business Review , some risks are so remote that no one could have imagined them. Some result from a perfect storm of incidents, while others materialize rapidly and on enormous scales.

By taking an online strategy course , you can build the knowledge and skills to identify strategic risks and ensure they don’t undermine your business. For example, through an interactive learning experience, Strategy Execution enables you to draw insights from real-world business examples and better understand how to approach risk management.

Do you want to mitigate your organization’s risks? Explore Strategy Execution —one of our online strategy courses —and download our free strategy e-book to gain the insights to build a successful strategy.

About the Author

9 strategic risk examples and how to successfully tackle them

What is meant by strategic risk? Strategic risk examples encompass many different risks — and depending on the nature of your business, you may face any or all of them. Understanding the types of strategic risk you face is fundamental to your ability to tackle them as part of your broader governance, risk and compliance (GRC) strategy.

Whether you are a chief risk officer and strategic risk falls firmly within your orbit, or whether as CFO, CEO or general counsel, you take more holistic responsibility for your organization's risk strategy. Understanding and mitigating risk at a strategic level will be a priority.

In today's hyper-connected world, the risk evolves faster than businesses can devise strategies to tackle it. Being familiar with different strategic risk examples can help you get ahead of the curve, helping you identify the types of strategic risk your organization faces and the tactics you can put in place to respond.

Understanding the different types of strategic risk

'Strategic risk' is a term that's often bandied about. But what does the phrase mean in practice? What types of risk are defined as 'strategic?' How do you identify strategic risks? What are the examples of strategic risks you might face in your organization? What are the types of strategic risk you should prioritize in your risk mitigation strategy?

What is strategic risk?

Strategic risk is a category of risk; alongside operational, financial, regulatory and other business risks, it forms part of the umbrella of risks your organization faces.

When we look at strategic risk examples, they are generally defined as those that threaten a business's ability to set and implement its chosen strategy.

They may be external; events like the Covid-19 pandemic are the perfect example here.

They may be 'self-inflicted,' brought about via an organization's own strategy and decision-making. An example of this would be the accelerating digital transformation of businesses, which has delivered many positives but has also exposed new types of risk.

Exploring strategic risk examples

Regulatory and legislative drivers relating to governance, risk and compliance strategies more generally are also prompting businesses to focus on strategic risk. At the same time, a spotlight has been thrown on strategic risk via growing awareness of the close ties between risk, compliance and business value .

This evolution of risk has led organizations to try and bring some structure to their mitigation strategies by categorizing and prioritizing the risks they face. Let's look at some of the examples of strategic risks you might face.

Some sources distill strategic risks into five types, sometimes called the 'five sources of strategic risk.' However, these aren't always consistent, however, look up several different sources, and you will find a variety of risks listed among the 'five types.'

Our list of strategic risk examples below therefore includes more than five.

What are the 9 examples of strategic risk?

Among the types of strategic risk you should have on your radar are:

• Competitive risk. The risk is that you fall behind your competitors as they innovate and improve their offerings faster than you.
• Change risk. The digital transformation risk we cited above is a prime example of this ' the inherent risks of introducing any change program.
• Disrupt your business
• Create new responsibilities
• Demand new technologies (and therefore linking back to change risk)
• Distract your business leaders from their operations as their time is abstracted to put in place new governance processes and control measures
• Reputational risk . The risk that your corporate standing is threatened. The potential causes of this are legion, from regulatory compliance breaches to shareholder activism or poor performance in public ratings, such as those used to measure ESG performance .
• Political risk. The potential for political change, or the political landscape overall, to disrupt your business. For example, through volatility in a country within your supply chain .
• Governance risk. The risk brought about by poor governance, risk and compliance processes within your organization.
• Financial risk. Risks relating to the financial health of the organization. This differs from...
• Economic risk. This refers to the broader economic landscape and its potential to affect the success of your business strategy.
• Operational risk. The risk is that your operations and business processes are not up to standard.

Many of these examples of strategic risk are inter-connected. For instance, if you face operational risks around the efficacy and rigor of your processes, this is likely to expose you to financial or regulatory risk. Similarly, if you fail to tackle governance risks, you may well encounter reputational risk.

The intertwined nature of the types of strategic risk emphasizes how important it is to take an integrated approach to address them.

How to tackle the different types of strategic risk

Amongst all these strategic risk examples, there are positives. The linkages that cause one risk to increase the chances of another can also work to your advantage. Take a coordinated, integrated stance on one aspect of strategic risk, and your performance in others should also improve. As companies refine their approaches to risk mitigation, they become better able to recognize these connections. As a result, they can approach risk strategically, capitalizing on synergies for a more robust result.

Below we also set out some specific tips that can help you tackle the different strategic risk examples:

• Competitive risk. Remaining competitive means understanding your competition; data is key here, and technology can be your friend in enabling you to provide your board with the competitive intelligence they need.
• Change risk. Here, good governance is the secret. Put governance at the heart of your change programs and reduce the risks they bring while enhancing their benefits.
• Regulatory risk. Keeping on top of the latest developments in the fast-moving regulatory landscape is vital here — you can't meet expectations if you're not aware of them. Ensure you keep abreast of the news and trends in risk and compliance .
• Reputational risk. Bolster your GRC processes , and you have a better chance of swerving the risks that can derail your brand.
• Political risk. There is less you can do here, although ensuring you build sustainable supply chains rooted in countries where political volatility is less of a threat can help make your operations more resilient.
• Governance risk. As with change risk, robust governance processes and controls are essential to reducing risk here.
• Financial risk. While some financial risks come from external factors, improving your ability to measure, monitor and respond to the business risks you face, if done successfully, should minimize the financial threats that fall within your wheelhouse.
• Economic risk.   S ustainable supply chains can help here, reducing the threat from economic instability in countries you source from. And, again, keeping pace with external events that can affect your risk profile is vital.
• Operational risk. One of the areas you have the most control over, introducing agility , rigor and structure to your operations can significantly reduce your risk across all areas of your organization.

Understand and respond to all types of strategic risk

Hopefully, this article has given you a deeper understanding of the types of strategic risk you face, some examples of strategic risk that bring this to life. It has also provided insights into how you can tackle different strategic risks.

Remaining on the front foot in terms of upcoming legislation, economic trends and governance best practice can really make the difference — amplifying your ability to be leverage strategic and proactive in the face of changing risks.

Master strategic risk in 2024: Expert insights & practical examples

The business landscape is constantly evolving. Stay ahead of the curve with insights from Renee Murphy , a recognized leader in the governance, risk, and compliance (GRC) space. Leveraging her 10 years of expertise at Forrester, this blog post dives deep into 9 real-world examples of strategic risks businesses face today. Learn how to identify, assess, and mitigate these threats to ensure your company's continued success.

Read the four-minute article now here: Risk in 2024 — 7 steps to calmly navigating the chaos

Solutions Solutions

• Board Management
• Enterprise Risk Management
• Audit Management
• Market Intelligence

Resources Resources

• Research & Reports

Company Company

Your data matters.

• My Account My Account
• Cards Cards
• Banking Banking
• Travel Travel
• Rewards & Benefits Rewards & Benefits
• Business Business

Curated For You

Related content, types of business risks and ideas for managing them.

Published: July 06, 2023

There are several types of business risks that can threaten a company’s ability to achieve its goals. Learn some of the most common risks for businesses and ideas for how to manage them.

Business risks can include financial, cybersecurity, operational, and reputational risks, all of which can seriously impact a company’s strategic plans if business leaders don’t take action to mitigate them.

What’s most important is that business owners are aware of the risks that could shake up their operations. That way, they can take steps to prevent them or minimize their impact if they occur. Here’s a look at some common business risks. 

Financial Risks

Companies must generate sufficient  cash flow  to make interest payments on loans and to meet other debt-related obligations on time. Financial risk refers to the  flow of money  in the business and the possibility of a sudden financial loss. A company may be at  financial risk  if it doesn’t have enough cash to properly manage its debt payments and becomes delinquent on its loans.

Businesses with relatively higher levels of debt financing are considered at higher financial risk, since lenders often see them as having a greater chance of not meeting payment obligations and becoming insolvent. Types of financial risk include:

• Credit risk:  When a company extends credit to customers, there is the possibility that those customers may stop making payments, which reduces revenue and earnings. A company also faces credit risk when a lender extends business credit to make purchases. If the company doesn’t have enough money to pay back those loans, it will default.
• Currency risk:  Currency risk, also known as exchange-rate risk, can arise from the change in price of one currency in relation to another. For example, if a U.S. company agrees to sell its products to a European company for a certain amount of euros, but the value of the euro rises suddenly at the time of delivery and payment, the U.S. business loses money because it takes more dollars to buy euros.
• Liquidity risk:  A company faces  liquidity  risk when it cannot convert its assets into cash. This type of business risk often occurs when a company suddenly needs a substantial amount of cash to meet its short-term debt obligations. For example, a manufacturing company may not be able to sell outdated machines to generate cash if no buyers come forward.

Cybersecurity Risks

As more businesses use online channels for  sales  and e-commerce payments, as well as for collecting and storing customer data, they are exposed to greater opportunities for hacking, creating security risks for companies and their stakeholders. Both employees and customers expect companies to protect their personal and financial information, but despite ongoing efforts to keep this information safe, companies have experienced data breaches, identity theft, and payment fraud incidents.

When these incidents happen, consumer confidence and trust in companies can take a dive.

Not only do security breaches threaten a company’s reputation, but the company is sometimes financially liable for damages.

Ideas for managing security risks: 

• Investing in fraud detection tools and software  security solutions .
• Educating employees about how they can do their part to keep the company’s data safe. Basic guidance includes not clicking suspicious links in emails or sharing sensitive data without encrypting it first.

Operational Risks

A business is considered to have operational risk when its day-to-day activities threaten to decrease profits. Operational risks can result from employee errors, such as undercharging customers. Additionally, a natural disaster like a tornado, hurricane, or flood might damage a company’s buildings or other physical assets, disrupting its daily operations.

Of course, one of the starkest examples of negative impacts to companies' production and supply chain operations is the Coronavirus pandemic. In an April 2022 Small Business Pulse Survey conducted by the U.S. Census Bureau, roughly 65 percent of respondents reported that the pandemic had either a moderate negative effect or a large negative effect on their business. 

• Making time for necessary employee training to minimize internal mistakes.
• Developing contingency plans to shield against external events that may impact operations. For example, a restaurant impacted by a natural disaster might be able to partner with another local restaurant, bar, or coffee shop to use their kitchen and sell to-go items.

Reputational Risks

Reputational risk  can include a product safety recall, negative publicity, and negative reviews online from customers. Companies that suffer reputational damage can even see an immediate loss of revenue, as customers take their business elsewhere. Companies may experience additional impacts, including losing employees, suppliers, and other partners.

Ideas for managing reputational risks: 

• Pay attention to what customers and employees say about the company both online and offline.
• Commit not only to providing a quality product or service, but also to ensuring that workers are trained to deliver excellent customer service and to resolve customer complaints, offer refunds, and issue apologies when necessary.

The Takeaway

Business owners face a variety of business risks, including financial, cybersecurity, operational, and reputational. However, they can take proactive measures to prevent or mitigate risk while continuing to  seize opportunities for growth . To learn more about the benefits of risk management planning read,  "5 Hidden Benefits of Risk Management."

Frequently Asked Questions

1. what are the main types of business risks.

There are several types of business risks: • Financial Risks • Cybersecurity Risks • Operational Risks • Reputational Risks

2. What are common examples of business risks?

• Financial risks can include cash flow problems, inability to meet financial obligations, or taking on too much debt. • Cybersecurity risks are risks associated with data breaches, hacks, or cyber-attacks. • Operational risks include supply chain disruptions, natural disasters, or IT failures. • Reputational risks can occur when a company's reputation is damaged by negative publicity, scandal, or other events.

3. How can you identify a business risk?

There are a few key ways to identify business risks:

• Reviewing financial statements and performance indicators: This can help you identify risks related to cash flow, profitability, or solvency. • Conducting a SWOT analysis: A SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) can also be a helpful tool for identifying risks and brainstorming ways to mitigate them. • Identifying key dependencies: Key dependencies are things that your business relies on to function, and if they were to fail or be disrupted, it could have a serious impact on your business. • Carrying out root cause analysis: Conducting root cause analysis can help you to identify what underlying factors could lead to a problem or issue.

A version of this article was originally published September 01, 2022.

Photo: Getty Images

Trending Content

• Contact sales

Start free trial

How to Make a Risk Management Plan (Template Included)

You identify them, record them, monitor them and plan for them: risks are an inherent part of every project. Some project risks are bound to become problem areas—like executing a project over the holidays and having to plan the project timeline around them. But there are many risks within any given project that, without risk assessment and risk mitigation strategies, can come as unwelcome surprises to you and your project management team.

That’s where a risk management plan comes in—to help mitigate risks before they become problems. But first, what is project risk management ?

What Is Risk Management?

Risk management is an arm of project management that deals with managing potential project risks. Managing your risks is arguably one of the most important aspects of project management.

The risk management process has these main steps:

• Risk Identification: The first step to manage project risks is to identify them. You’ll need to use data sources such as information from past projects or subject matter experts’ opinions to estimate all the potential risks that can impact your project.
• Risk Assessment: Once you have identified your project risks, you’ll need to prioritize them by looking at their likelihood and level of impact.
• Risk Mitigation: Now it’s time to create a contingency plan with risk mitigation actions to manage your project risks. You also need to define which team members will be risk owners, responsible for monitoring and controlling risks.
• Risk Monitoring: Risks must be monitored throughout the project life cycle so that they can be controlled.

If one risk that’s passed your threshold has its conditions met, it can put your entire project plan in jeopardy. There isn’t usually just one risk per project, either; there are many risk categories that require assessment and discussion with your stakeholders.

That’s why risk management needs to be both a proactive and reactive process that is constant throughout the project life cycle. Now let’s define what a risk management plan is.

What Is a Risk Management Plan?

A risk management plan defines how your project’s risk management process will be executed. That includes the budget , tools and approaches that will be used to perform risk identification, assessment, mitigation and monitoring activities.

Get your free

Risk Management Plan Template

Use this free Risk Management Plan Template for Word to manage your projects better.

A risk management plan usually includes:

• Methodology: Define the tools and approaches that will be used to perform risk management activities such as risk assessment, risk analysis and risk mitigation strategies.
• Risk Register: A risk register is a chart where you can document all the risk identification information of your project.
• Risk Breakdown Structure: It’s a chart that allows you to identify risk categories and the hierarchical structure of project risks.
• Risk Assessment Matrix: A risk assessment matrix allows you to analyze the likelihood and the impact of project risks so you can prioritize them.
• Risk Response Plan: A risk response plan is a project management document that explains the risk mitigation strategies that will be employed to manage your project risks.
• Roles and responsibilities: The risk management team members have responsibilities as risk owners. They need to monitor project risks and supervise their risk response actions.
• Budget: Have a section where you identify the funds required to perform your risk management activities.
• Timing: Include a section to define the schedule for the risk management activities.

How to Make a Risk Management Plan

For every web design and development project, construction project or product design, there will be risks. That’s truly just the nature of project management. But that’s also why it’s always best to get ahead of them as much as possible by developing a risk management plan. The steps to make a risk management plan are outlined below.

1. Risk Identification

Risk identification occurs at the beginning of the project planning phase, as well as throughout the project life cycle. While many risks are considered “known risks,” others might require additional research to discover.

You can create a risk breakdown structure to identify all your project risks and classify them into risk categories. You can do this by interviewing all project stakeholders and industry experts. Many project risks can be divided up into risk categories, like technical or organizational, and listed out by specific sub-categories like technology, interfaces, performance, logistics, budget, etc. Additionally, create a risk register that you can share with everyone you interviewed for a centralized location of all known risks revealed during the identification phase.

You can conveniently create a risk register for your project using online project management software. For example, use the list view on ProjectManager to capture all project risks, add what level of priority they are and assign a team member to own identify and resolve them. Better than to-do list apps, you can attach files, tags and monitor progress. Track the percentage complete and even view your risks from the project menu. Keep risks from derailing your project by signing up for a free trial of ProjectManager.

2. Risk Assessment

In this next phase, you’ll review the qualitative and quantitative impact of the risk—like the likelihood of the risk occurring versus the impact it would have on your project—and map that out into a risk assessment matrix

First, you’ll do this by assigning the risk likelihood a score from low probability to high probability. Then, you’ll map out your risk impact from low to medium to high and assign each a score. This will give you an idea of how likely the risk is to impact the success of the project, as well as how urgent the response will need to be.

To make it efficient for all risk management team members and project stakeholders to understand the risk assessment matrix, assign an overall risk score by multiplying your impact level score with your risk probability score.

3. Create a Risk Response Plan

A risk response is the action plan that is taken to mitigate project risks when they occur. The risk response plan includes the risk mitigation strategies that you’ll execute to mitigate the impact of risks in your project. Doing this usually comes with a price—at the expense of your time, or your budget. So you’ll want to allocate resources, time and money for your risk management needs prior to creating your risk management plan.

4. Assign Risk Owners

Additionally, you’ll also want to assign a risk owner to each project risk. Those risk owners become accountable for monitoring the risks that are assigned to them and supervising the execution of the risk response if needed.

Related: Risk Tracking Template

When you create your risk register and risk assessment matrix, list out the risk owners, that way no one is confused as to who will need to implement the risk response strategies once the project risks occur, and each risk owner can take immediate action.

Be sure to record what the exact risk response is for each project risk with a risk register and have your risk response plan it approved by all stakeholders before implementation. That way you can have a record of the issue and the resolution to review once the entire project is finalized.

5. Understand Your Triggers

This can happen with or without a risk already having impacted your project—especially during project milestones as a means of reviewing project progress. If they have, consider reclassifying those existing risks.

Even if those triggers haven’t been met, it’s best to come up with a backup plan as the project progresses—maybe the conditions for a certain risk won’t exist after a certain point has been reached in the project.

6. Make a Backup Plan

Consider your risk register and risk assessment matrix a living document. Your project risks can change in classification at any point during your project, and because of that, it’s important you come up with a contingency plan as part of your process.

Contingency planning includes discovering new risks during project milestones and reevaluating existing risks to see if any conditions for those risks have been met. Any reclassification of a risk means adjusting your contingency plan just a little bit.

7. Measure Your Risk Threshold

Measuring your risk threshold is all about discovering which risk is too high and consulting with your project stakeholders to consider whether or not it’s worth it to continue the project—worth it whether in time, money or scope .

Here’s how the risk threshold is typically determined: consider your risks that have a score of “very high”, or more than a few “high” scores, and consult with your leadership team and project stakeholders to determine if the project itself may be at risk of failure. Project risks that require additional consultation are risks that have passed the risk threshold.

To keep a close eye on risk as they raise issues in your project, use project management software. ProjectManager has real-time dashboards that are embedded in our tool, unlike other software where you have to build them yourself. We automatically calculate the health of your project, checking if you’re on time or running behind. Get a high-level view of how much you’re spending, progress and more. The quicker you identify risk, the faster you can resolve it.

Free Risk Management Plan Template

This free risk management plan template will help you prepare your team for any risks inherent in your project. This Word document includes sections for your risk management methodology, risk register, risk breakdown structure and more. It’s so thorough, you’re sure to be ready for whatever comes your way. Download your template today.

Best Practices for Maintaining Your Risk Management Plan

Risk management plans only fail in a few ways: incrementally because of insufficient budget, via modeling errors or by ignoring your risks outright.

Your risk management plan is one that is constantly evolving throughout the course of the project life cycle, from beginning to end. So the best practices are to focus on the monitoring phase of the risk management plan. Continue to evaluate and reevaluate your risks and their scores, and address risks at every project milestone.

Project dashboards and other risk tracking features can be a lifesaver when it comes to maintaining your risk management plan. Watch the video below to see just how important project management dashboards, live data and project reports can be when it comes to keeping your projects on track and on budget.

In addition to your routine risk monitoring, at each milestone, conduct another round of interviews with the same checklist you used at the beginning of the project, and re-interview project stakeholders, risk management team members, customers (if applicable) and industry experts.

Record their answers, adjust your risk register and risk assessment matrix if necessary, and report all relevant updates of your risk management plan to key project stakeholders. This process and level of transparency will help you to identify any new risks to be assessed and will let you know if any previous risks have expired.

How ProjectManager Can Help With Your Risk Management Plan

A risk management plan is only as good as the risk management features you have to implement and track them. ProjectManager is online project management software that lets you view risks directly in the project menu. You can tag risks as open or closed and even make a risk matrix directly in the software. You get visibility into risks and can track them in real time, sharing and viewing the risk history.

Tracking & Monitor Risks in Real Time

Managing risk is only the start. You must also monitor risk and track it from the point that you first identified it. Real-time dashboards give you a high-level view of slippage, workload, cost and more. Customizable reports can be shared with stakeholders and filtered to show only what they need to see. Risk tracking has never been easier.

Risks are bound to happen no matter the project. But if you have the right tools to better navigate the risk management planning process, you can better mitigate errors. ProjectManager is online project management software that updates in real time, giving you all the latest information on your risks, issues and changes. Start a free 30-day trial and start managing your risks better.

Deliver your projects on time and on budget

Start planning your projects.

At the end of your visit today, would you complete a short survey to help improve our services?

Thanks! When you're ready, just click "Start survey".

It looks like you’re about to finish your visit. Are you ready to start the short survey now?

Identifying and managing business risk

Risk is a part of doing business. Find ways to minimise risks and impacts to ensure your business can safely run and grow.

What is business risk

Business risks are factors that threaten your ability to operate, leading to lost profits or business failure.

When identifying and managing risks, consider:

• the possible causes and impacts
• how these risks affect your business objectives
• how they could be recorded in a risk management plan
• steps you could take to minimise the risk or the impact.

By considering potential risks and impacts in advance, you can develop procedures without the added pressure of trying to manage the risk at the time.

Understanding business risk

Types of risks include:

• direct risk—a threat to your business that is within your control
• indirect risk—a threat to your business that is out of your control
• internal risk—risks you have the power to prevent or mitigate within your business
• external risk—risks you have no control over.

Risks, potential business impacts and resources

(e.g. flood, fire, cyclone, storm, drought)

Type of risk

Potential impact on business objectives.

• Unable to trade
• Premises closed
• Cost of time for cleaning up and rebuilding
• Customers cannot get through
• Suppliers cannot provide stock

Resources to assist

• Natural disaster preparation for small businesses
• Business insurance
• Understand your risk – advice from the Queensland Reconstruction Authority

(e.g. COVID-19, swine flu, bird flu)

• Staff unable to work
• Cleaning and restocking time and costs
• Customer behaviour changes
• Loss of livestock
• Pandemic and health event risk management
• Major health event preparation for small business
• Disaster recovery for livestock farms

(e.g. wars, political disruption, supply chain disruption)

• Cannot get or send stock through normal import/export channels
• Need to change suppliers or find other markets
• Market profiles from Trade and Investment Queensland
• IBISWorld industry reports available for free from State Library of Queensland

(e.g. import and export regulations, change in tax obligations)

• New policies and procedures to implement
• Changes in trading
• Changes in taxation and financial obligations
• Changes in environmental allowances (e.g. water allocations, waste management)
• Meeting your legal obligations
• Complying with payroll tax obligations
• Meeting environmental obligations and duties

(e.g. hazards, equipment)

• Hazards and injuries to staff
• Failure to provide a safe workplace
• WorkSafe Queensland

(e.g. sustainable practices, ethical practices)

• Climate change
• Chemical spills and failing to protect the environment
• Consumer trends towards desiring sustainability
• Environment and business
• Adapting to climate change
• Climate change risk management tool for small businesses (PDF, 10.2MB)

(e.g. power outages, transport disruption, road works)

• Electrical, gas, and water disruption to the business premises
• Access to business premises disrupted including parking, deliveries, and pedestrian traffic
• Works with small business — guidelines for agencies to proactively engage with small businesses when undertaking capital works projects.

(e.g. computers, internet, networks, client databases, telecommunications)

• Older technology and software failures
• Software does not meet new regulations
• Cyber security compromised causing disruptions and loss of data or intellectual property
• Failure in maintaining privacy of customer data
• IT risk management
• IT threat preparation for small business
• Cyber security – protect your online business activity

(e.g. supplier agreements, lease agreements, staff contracts)

• Contractual problems
• Failing to meet legislation, regulations, or obtaining licences and permits
• Australian Business Licence and Information Service (ABLIS)
• Resolving business disputes
• Assistance for small businesses from the Queensland Small Business Commissioner

(e.g. shoplifting, internal theft, staff safety)

• Shoplifting
• Fraud causing loss of equipment
• Stock and cash flow
• Vandalism causing cost of time to replace and repair
• Shoplifting, stealing, fraud, and burglary
• Security and crime prevention

(e.g. online reviews, customer feedback)

• Negative media coverage
• Social media rumours
• Staff leave the business
• Reputation incident preparation for small business
• Social media
• Online communication and customer reviews

(e.g. recruitment, staff, training)

• Difficulty in finding new staff
• Bullying and harassment
• Staff not well trained leading to mistakes and poor customer service
• Managing conflict in the workplace
• Staff training, development and mentoring
• Help to hire staff from Workforce Australia.

(e.g. economic downturns, inflation)

• A reduction in consumer spending
• Changing market leading to reduced income
• Increasing expense costs, e.g. fuel, transport, energy
• Suppliers may be affected
• Surviving an economic downturn
• Marketing, advertising and promotion
• IBISWorld industry reports available for free from the State Library of Queensland

Analysing risk impact

It can be overwhelming to consider all possible risks a business faces. Assessing the impact of each can help prioritise where to invest your time and energy.

Completing this exercise will help you focus on risks with the highest scores and therefore the greatest potential to impact your business.

Risks come in different forms. Some will have a big impact and others a moderate impact. Working out which to focus on can be considered by looking at a 'level of risk' scale.

This scale determines the likelihood of the risk occurring and looks at the impact if the event does occur to determine a level of risk score. The higher the score, the higher the priority to reduce the risk or impact.

Likelihood × Impact = Level of risk

Likelihood scale

Impact scale, level of risk (likelihood x impact).

Developing and using risk analysis methods can help to assess the levels of risk within the business and where to focus.

A business in its 5 th year of operation is using a computer to access and record high volumes of sales in a customer database.

Due to rapid growth over the past 2 years, the computer has not been updated in some time, changes to software packages installed have not taken place, and passwords for online accounts have not been changed. Staff are reporting odd phone calls from 'IT officers' seeking account information to prevent 'emergency situations'.

There is some risk this business could be the target of hackers who are interested in customer data, information about sales and other information collected by the business.

The impact of getting hacked is losing sensitive customer data, jeopardising the business's reputation and depending on the nature of the hack, potential compromise of the business's banking information.

The current situation is sitting on the scale as a:

• Likelihood: High (level 3)
• Impact: Very High (level 4)
• Level of risk: Likelihood 3 x Impact 4 = 12 Severe

This presents as a severe risk.

Reducing this risk level immediately is recommended.

Action item

Use this section to help you complete a risk level assessment.

Record this in your business continuity plan template —risk management plan section and business impact analysis section.

Treating risks to your business

Once you have completed the analysis and identified the areas of concern, the next step is to consider how to reduce the level on the scale.

You can treat risks by assessing the factors attached to the risk and identifying areas for improvement.

In the case study above, the level of risk can be reduced by updating software, changing passwords and reminding staff to be very careful with business information and decline requests to provide information over the phone.

While these actions might not remove the risk, they can reduce a highly likely, very high impact situation to a medium likelihood, moderate impact situation.

Often, high-risk situations can be reduced to medium or low risk with some careful planning and action.

Ask yourself

• What is one high risk in your business right now?
• How likely is it?
• What would you rate the impact of this risk occurring?
• How could you reduce the likelihood or the impact for this high-level risk?

Creating a risk management plan and business impact analysis

Once you have identified risks to your own business, manage them by developing a risk management plan to assist:

• avoiding the impact
• eliminating the impact
• reducing the impact.

A risk management plan identifies risk. Business impact analysis considers strategies to manage risks.

Your business continuity plan is key to recording risks to the business and coming up with plans to manage them.

Download the business continuity plan template

This template includes a:

• risk management plan section
• business impact analysis section

Download the business continuity planning template .

Use this page (and other resources provided) to complete the risk management plan and business impact sections of the template.

To prepare:

• identify significant risks to your business
• analyse the potential impact of each risk
• create strategies to treat and reduce the risks
• create or review and update your risk management plan and business impact analysis.

The business continuity plan is a good point of reference to record this information and to refer to in the event of an emergency.

Find out more about writing a business continuity plan .

Reviewing and updating your risk management plan and business impact analysis

Risk management plans and business impact analysis are part of your business continuity plan.

As time goes by, and as the business changes, updating these sections of your business continuity plan will help you consider new risks, downgrade treated risks and highlight areas for improvement.

Conducting tests or trials to see what would happen if risks eventuated can help with this process. A good example of these is an emergency evacuations drill.

By conducting an evacuation drill, you will be able to determine:

• how the business performed
• did the process and systems work effectively
• what areas need to be reviewed or improved.

Upon review, update your risk management plan with revised procedures and communicate these changes to your staff.

By planning for challenges, your business is better prepared to meet them.

Also consider...

• Find out about managing risk with business insurance .
• Read about writing a business continuity plan .
• Explore managing risks when starting up .
• Find out about IT risk management .
• View our Cyber security for small business webinar for information, tips and resources on protecting yourself and your business from cyber security threats.
• Last reviewed: 24 Nov 2022
• Last updated: 24 Nov 2022

• Starting a Business
• Growing a Business
• Small Business Guide
• Business News
• Science & Technology
• Money & Finance
• For Subscribers
• Write for Entrepreneur
• Entrepreneur Store
• United States
• Asia Pacific
• Middle East
• South Africa

Copyright © 2024 Entrepreneur Media, LLC All rights reserved. Entrepreneur® and its related marks are registered trademarks of Entrepreneur Media LLC

Business Plan Risks How to present your business risks without scaring away investors

By Stever Robbins Dec 11, 2004

Opinions expressed by Entrepreneur contributors are their own.

Q: I would like to include a risk analysis in my business plan. I don't know how to show risks without sending investors into an anxious frenzy.

A: Any start-up idea will have enough risk to fill a dozen business plans. No investor expects a risk-free plan. Angels and VCs know start-ups are incredibly risky. If they don't, don't take their money--they don't know what they're doing! Most projects fail for reasons that could have been (and sometimes were) predicted far in advance. Since entrepreneurs are optimistic folks by nature: They tend to brush off predictions of doom and charge ahead assuming they will find a way to overcome. You can often avoid the most dire scenarios with intelligent upfront risk planning.

The risk analysis in your plan is to show that you've thought through risks, that you know how to plan for probable risks, and that your plan can survive when things go wrong.

Your plan can address several kinds of risk. You don't need to address every kind of risk in the book, but pick the risk categories that are most relevant to your company and include a paragraph or two about each:

• Product risk is the risk that the product can't be created. Biotech firms often have a high degree of product risk. They never know for sure they can produce the drug they are hoping to produce.
• Market risk is the risk that the market will develop differently than expected. Sometimes markets take too long to develop, and cash runs out while a company is waiting for customers.
• People risk is big in companies that depend on having certain employees or certain kinds of employees. I was with a company that had hired one of the world experts in a certain type of 3-D modeling. It was possible that without this man on board and happy, the company wouldn't be able to create their product.
• Financial risk is the risk that a company will run out of money or mismanage their money in some way. Finance companies may have huge financial risk, since bad lending policies combined with poor investment policies can sink them.
• Competitive risk is the risk that a competing product or service will be able to win. Many Web-based businesses have high competitive risk since they can be started with little money and have no way of locking in customers.

What investors want is to know that you are prepared to respond to risks. To the extent possible, outline what your response is to the risk you anticipate. After all, assuming you get funding, those risks may really come to pass. And you will really have to do something about it. By showing investors some of the alternatives you've thought through, you raise their confidence that you'll be able to deal if things don't go according to plan.

For example, consider the risk to a restaurant that people won't come back. What are the reasons you believe that would happen? What can you do to keep that from happening in the first place? It amazes me how many restaurants have a lousy menu selection or bad food and go under without ever asking customers, "Did you enjoy your meal? What could we do to make it better?" An at-the-table survey may be how you propose to avoid having the wrong menu. If things go wrong, you may decide to proactively invite critics to the restaurant for specific feedback on how to make the experience better.

The key is acknowledging that things can go wrong and demonstrating some creativity in finding a solution. You certainly needn't respond to every risk imaginable. Your goal is to provide enough to help your investors feel secure that you have anticipated and dealt with major risks, and they can count on you to handle things that come up once the business is under way.

Stever Robbins is a consultant specializing in mastering overwhelm, power and influence. The author of It Takes a Lot More Than Attitude...to Lead a Stellar Organization , he has been a team member or co-founder of nine startups, an advisor and angel investor, and co-developer of Harvard's MBA program. You can find his other articles and information at SteverRobbins.com .

This article originally appeared on Entrepreneur.com in 2002.

Stever Robbins is a venture coach, helping entrepreneurs and early-stage companies develop the attitudes, skills and capabilities needed to succeed. He brings to bear skills as an entrepreneur, teacher and technologist in helping others create successful ventures.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick Red Arrow

• Lock Want to Start a Simple Business That Helps the Planet? After 'One Night's Worth of Research,' He Started an Eco-Friendly Gig and Now Makes $200,000 a Year
• I've Negotiated High-Pressure, Multi-Million-Dollar Deals for Artists Like Bruno Mars and Enrique Iglesias — Here's the Strategy That Always Helps Me Win
• Lock This Toxic Money Habit Is Becoming More Common — If You've Picked It Up, Your Finances Are at Serious Risk , Expert Warns
• 'This Year Almost Broke Me': Tom Schwartz Reveals 'Scandoval' Almost Shut Down His Restaurant After Losing 80% of His Business
• 'Not What Anybody Signed Up For': A Legal Expert Weighs in on the Labor Rule That Could Destroy Franchising
• Lock Anyone Can Try the Simple Strategy That One Billionaire Investor Used to Make His First Million Dollars Tax-Free

Most Popular Red Arrow

These coworkers-turned-friends started a side hustle on amazon — now it's a 'full hustle' earning over $20 million a year: 'jump in with both feet'.

Achal Patel and Russell Gong met at a large consulting firm and "bonded over a shared vision to create a mission-led company."

These Are the 10 Most Profitable Cities for Airbnb Hosts, According to a New Report

Here's where Airbnb property owners and hosts are making the most money.

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

How to Turn Your Hobby Into a Successful Business

A hobby, interest or charity project can turn into a money-making business if you know the right steps to take.

This Couple Turned Their Startup Into a $150 Million Food Delivery Company. Here's What They Did Early On to Make It Happen.

Selling only online to your customers has many perks. But the founders of Little Spoon want you to know four things if you want to see accelerated growth.

All Startups Need a Well-Defined Brand Positioning Statement. Here's a 3-Step Framework to Help You Craft One.

Startup founders often lack time but they should invest resources in identifying a winning brand position that will then drive all their strategic decisions.

Successfully copied link

Why Are Major Risks in the Business Plan?

• Small Business
• Business Planning & Strategy
• Business Risk
• ')" data-event="social share" data-info="Pinterest" aria-label="Share on Pinterest">
• ')" data-event="social share" data-info="Reddit" aria-label="Share on Reddit">
• ')" data-event="social share" data-info="Flipboard" aria-label="Share on Flipboard">

Purpose of Financial Analysis

Strategic analysis of a company, what is 'systems thinking' in business.

• The Purpose of Analytical Business Reports
• Fundamental Principles of Strategic & Business Planning Models

Risk factors are possible events that, should they happen, could cause a company’s revenues or profits to be lower than what the owner had forecast. They are a standard part of a thorough business plan, whether the plan is designed for internal use by the management team or will be presented to outside investors. Risk factors are also called threats, because they threaten the business’s success and in extreme circumstances even its survival.

Encourages Contingency Planning

The risk factors section of the business plan should go beyond simply listing what might go wrong. Being aware of what could negatively impact the company is important, but the real value of including risk factors is the business owner’s thinking process to determine how she would mitigate the risks to minimize the financial damage to her company. The thinking process is referred to as contingency planning, also know as “what if” analysis. The business owner will make changes to her marketing strategies, operations and financial management in response to these risks becoming a reality.

Focus on the Business Environment

A company should have a system in place to gather information about emerging or potential risks. Monitoring competitors on an ongoing basis is one aspect of this system. The decisions a company’s competitors make pose threats, because they are designed to give the competitors a stronger market position by taking potential business away from the company. Risk factors are not just considered at the time the company is preparing its annual business plan -- they are year-round considerations, because new threats emerge throughout the year.

Alert Potential Investors

A venture capital firm or angel investor that is contemplating putting money into a business enterprise must assess the risk that the company’s financial results will be lower than forecast. The value of the company grows as the revenues and profits of the business grow. The risk factors alert the investor to the fact there is always a possibility of losing part or all of the money he puts into the company. If the investor believes the risks could severely hurt the company should they occur, he may decline to make the investment. As a practical matter, sophisticated investors do their own risk analysis prior to putting money in a company, but the fact the management team is aware of, and has strategies for dealing with, the risks can make the investors more confident about the management team’s abilities.

Moving Forward Confidently

Analyzing risk factors allows the management team to be confident it is ready for whatever business environment the company may face in the upcoming year and beyond. The team has strategies in place that can be quickly implemented to minimize the damage caused by threats from competitors or changes in the overall economy. The management team assesses which risks are most likely to become actual threats and which have a very low likelihood of occurring. Owners of companies will always have external threats to worry about, but the risk analysis process helps reduce the number of worries to those that have the potential to negatively impact their revenues or profits.

• Inc.: Managing Risk in a New Venture

Brian Hill is the author of four popular business and finance books: "The Making of a Bestseller," "Inside Secrets to Venture Capital," "Attracting Capital from Angels" and his latest book, published in 2013, "The Pocket Small Business Owner's Guide to Business Plans."

Related Articles

How do changes in the business environment affect the cost and profit analysis, why perform a swot analysis, what happens when businesses have contingency plans, key concepts of financial management, business enterprise planning, what is the business planning process, what are the parts of an effective risk management program, what is the meaning of corporate planning, assessment strategies in business, most popular.

• 1 How Do Changes in the Business Environment Affect the Cost and Profit Analysis?
• 2 Why Perform a SWOT Analysis?
• 3 What Happens When Businesses Have Contingency Plans?
• 4 Key Concepts of Financial Management

• GLOBAL SEARCH
• WEB SUPPORT

16 Entrepreneurs Explain What Work Means to Them

25 Entrepreneurs Share Essential Skills One Needs to be a CEO

22 Entrepreneurs Share How They Incorporate Health and Fitness into Their Day

8 Entrepreneurs Reveal How Much They Work In a Week

11 Entrepreneurs Reveal Their Why/Motivation

12 Entrepreneurs Share Views on Whether Entrepreneurs are Born or Made

7 Entrepreneurs Share Essential Skills One Needs to be a CEO

30 Entrepreneurs Share Essential Skills One Needs to be a CEO

15 Entrepreneurs Explain The Misconceptions Around Entrepreneurship & Business

• Wordpress 4 CEOs

How to Create a Google Business Profile / Tips to Optimize Google Business Profile

How to Get Your Product Into Walmart- {Infographic}

Make Money using Facebook – Make Great Posts

2 Interesting Updates from WordPress 4.8 Evans

How To Know If Your Business Idea Will Succeed

This is How to Write a Converting Email Autoresponder Series

15 Entrepreneurs Explain What They Love And/Or Hate About WordPress

6 Updates That I’m Paying Attention to with WordPress 4.7 – Vaughan

Download Our Free Guide

5 Entrepreneurs Share Their Favorite Business Books

18 Entrepreneurs and Business Owners Reveal Their Best Leadership Tips

30 Entrepreneurs Share Their Thoughts On the Role of Middle Management Within Organizations

30 Entrepreneurs Reveal The Future Trends They Anticipate in Entrepreneurship

27 Entrepreneurs Reveal The Future Trends They Anticipate in Entrepreneurship

12 Entrepreneurs Explain What Hustle Means To Them

7 Entrepreneurs Reveal Their Business Goals for 2024

27 Entrepreneurs List Their Favorite Business Books

14 Entrepreneurs Describe Their Leadership Style

30 Entrepreneurs Define The Term Disruption

25 Entrepreneurs Define Innovation And Disruption

16 Entrepreneurs Define The Term Disruption

15 Entrepreneurs Define Innovation And Disruption

• GUEST POSTS
• WEBSITE SUPPORT SERVICES
• FREE CBNation Buzz Newsletter
• Premium CEO Hack Buzz Newsletter

Business Plan 101: Critical Risks and Problems

When starting a business, it is understood that there are risks and problems associated with development. The business plan should contain some assumptions about these factors. If your investors discover some unstated negative factors associated with your company or its product, then this can cause some serious questions about the credibility of your company and question the monetary investment. If you are up front about identifying and discussing the risks that the company is undertaking, then this demonstrates the experience and skill of the management team and increase the credibility that you have with your investors.  It is never a good idea to try to hide any information that you have in terms of risks and problems.

Identifying the problems and risks that must be dealt with during the development and growth of the company is expected in the business plan. These risks may include any risk related to the industry, risk related to the company, and risk related to its employees. The company should also take into consideration the market appeal of the company, the timing of the product or development, and how the financing of the initial operations is going to occur. Some things that you may want to discuss in your plan includes: how cutting costs can affect you, any unfavorable industry trends, sales projections that do not meet the target, costs exceeding estimates, and other potential risks and problems.  The list should be tailored to your company and product. It is a good idea to include an idea of how you will react to these problems so your investors see that you have a plan.

Related Posts

Business Plan 101: Overall Schedule

Business plan 101: personal financial statement.

This Teach a CEO focuses on Google Business Profile formerly Google My Business. List your business on Google with a...

How can you get your products into Walmart? Many entrepreneurs struggle with the lack of ideas on where exactly they...

As we know that ‘Content is the King’, therefore, you must have an ability to write and share good quality...

WordPress 4.8 is named "Evans" in honor of jazz pianist and composer William John “Bill” Evans. There's not a log of...

Business Plan 101: Financial History

Leave a reply cancel reply.

Your email address will not be published. Required fields are marked *

Privacy Policy Agreement * I agree to the Terms & Conditions and Privacy Policy .

This site uses Akismet to reduce spam. Learn how your comment data is processed .

Join CBNation Buzz

Our Latest CBNation Content:

• CEO and YouTube Ads Expert Unlocks the Power of Alpha AI Targeting Strategy
• CEO and Counselor Uncovers the Truths on the Power of Counseling and Self-Reflection
• IAM2107 – Founder Leverages Her Skill of Intuition and Understanding to Help People Find Love
• IAM2106 – Business Strategist Helps Entrepreneurs Unlock Business Efficiency
• IAM2105 – CEO and Founder Helps Entrepreneurs Reach Audiences By Getting Them Featured in The Media
• IAM2104 – CEO and Founder Helps Companies Scale their Products and Services through Affiliate Marketing

Our Sponsors

Join thousands of subscribers & be the first to get new freebies.

What is CBNation?

We're like a global business chamber but with content... lots of it.

CBNation includes a library of blogs, podcasts, videos and more helping CEOs, entrepreneurs and business owners level up

CBNation is a community of niche sites for CEOs, entrepreneurs and business owners through blogs, podcasts and video content. Started in much the same way as most small businesses, CBNation captures the essence of entrepreneurship by allowing entrepreneurs and business owners to have a voice.

CBNation curates content and provides news, information, events and even startup business tips for entrepreneurs, startups and business owners to succeed.

+ Mission: Increasing the success rate of CEOs, entrepreneurs and business owners.

+ Vision: The media of choice for CEOs, entrepreneurs and business owners.

+ Philosophy: We love CEOs, entrepreneurs and business owners and everything we do is driven by that. We highlight, capture and support entrepreneurship and start-ups through our niche blog sites.

Our Latest Content:

• IAM2103 – Leadership Coach Helps Sales Leaders Achieve Pro Level Performance by Harnessing their Mental Toughness
• IAM2102 – Mindset Strategist Helps Athletic Talents Create a Prosperous Business Venture
• IAM2101 – Innovator Creates a Virtual Wellness Platform Helping People to Conquer Health Goals
• Food Blogger Brings Culture to Your Kitchen

Privacy Overview

• Teach A CEO

Share on Mastodon

Get started

• Project management
• CRM and Sales
• Work management
• Product development life cycle
• Comparisons
• Construction management
• monday.com updates

4 practical risk mitigation strategies for your business

As humans, we’re used to assessing risks; it’s part of our survival mechanisms. But limiting risk — also called risk mitigation — impacts whether a business survives.

Imagine a scenario where business leaders don’t stop to reflect on past mistakes or constantly dive into new opportunities without considering how they could impact their business — this wouldn’t be sustainable.

To effectively reduce risk within an organization, we need to understand the different types of risk and how to prevent them. In this article, we’ll cover the various types of risks, share four risk mitigation strategies, and show you how to build a plan on monday.com Work OS to help you future-proof your business.

What is risk mitigation?

Risk mitigation is the practice of reducing the impact of potential risks by developing a plan to manage, eliminate, or limit setbacks as much as possible. After management creates and carries out the plan, they’ll monitor progress and assess whether or not they need to modify any actions.

In a nutshell, risk mitigation describes the tactics and techniques that bring risk levels down to a tolerable level for the business.

Though it might feel tempting to take a page from another business’s risk management book, your plan will depend on your unique business strategy.

Taking the time to create a unique risk mitigation plan could be the difference between maintaining a strong relationship with clients and losing out on business. Let’s look closer at what you would want to achieve when you mitigate risks.

Why do we mitigate risk?

Unfortunately, ignoring risk factors won’t make risks disappear, and forging ahead without a plan may damage your bottom line. This is why risk mitigation is important.

With a concrete plan with clear action items, you can prevent risks from turning into problems that spin out of control or even prevent risks altogether.

This not only carries tangible benefits — such as keeping your business profitable — but it also has intangible benefits, such as helping you maintain a good reputation for stability within the industry and keeping internal and external stakeholders happy.

The latter is significant. In a recent survey, two-thirds of respondents said the volume and complexity of risks were near their highest level in 14 years for all types of organizations, while less than one-third described their risk management processes as mature or robust.

Those operational risks can cost time, money, and other valuable resources. If stakeholders feel the risks are too high or mishandled, that could lead to a reshuffle in management. So risk mitigation is essential, but before you can develop a plan, you need to know what risks you can face.

What are the types of risk you may encounter?

The risks you face may differ from those of another business or industry, catering to different clients or customers. That said, a few common risks include:

• Compliance risk — when a company violates external or internal rules, regulations, or standards, its reputation or finances are at risk. Companies may face losing customers or paying a fine due to breaking compliance regulations.
• Legal risk — a type of compliance risk that happens when a company breaks the government’s rules for companies. Companies facing legal risks could also get caught up in expensive lawsuits.
• Strategic risk — the result of a company’s faulty business strategy or lack thereof.
• Reputational risk — a risk that can negatively impact the company’s standing or public opinion. Reputational risks can result in profit losses and decreased confidence among company shareholders.
• Operational risk — a business’ day-to-day activities can potentially drain its profits. Both internal systems and external factors can cause operational risks.

Image Source

Many businesses organize matrices by consequences and likelihood, like the one above. Identifying which risks you’ll face is the first step toward preventing them. Generally, there are a few types of risk mitigation strategies you can use to protect your business.

What are the four risk mitigation strategies?

There are four common risk mitigation strategies: avoidance, reduction, transference, and acceptance.

With a risk avoidance strategy, you take measures to avoid the risk from occurring. This may require compromising other resources or strategies to ensure you’re doing everything possible to avoid the risk.

For example, you may face a risk where you won’t be able to complete a task for an important project due to a lack of specialists. To avoid this risk, you could hire multiple specialists in case one got sick or wasn’t available.

Of course, hiring more resources would take a bigger slice out of the budget, so assessing how much you can compromise is an important step in this strategy.

With this mitigation approach, once you’ve completed your risk analysis , you would take steps to reduce the likelihood of a risk happening or the impact should it occur.

Let’s say your budget is tight, and there’s a risk you can’t complete a particular project due to a lack of funds.

You can reduce the likelihood of that risk occurring by proactively managing the costs within the budget. In this scenario, you could choose a cheaper option for raw materials or reduce the project scope to complete it within budget, like the image below:

Transference

Transferring risks involves passing the risk consequence to a third party. For many businesses, that might involve paying an insurance company to cover certain risks.

Risk transference might also be written into contracts with suppliers, outsourcing partners, or contractors. If a project gets delayed awaiting a part or service from an external contractor, for instance, the contractor might face penalties for any loss of revenue the business incurs.

Also, if a company has employees or contractors from around the world, a global compliance adviser can help support and address the challenges inherent to extending operations across different countries.

Lastly, we have the acceptance strategy, which means accepting the risk as it stands. Sometimes, the possibility of reward outweighs the risk, and it’s more beneficial in the long run to take the chance.

It could also be that the probability of the risk occurring is minimal or the negative impact is minor. For items in this “Low” risk category, a business might have an ongoing strategy to accept the risk.

With risk acceptance, it’s vital to monitor the risk carefully for any changes to impact or likelihood of occurrence. You may also want to keep weighing the risk against your risk appetite and assess whether carrying the burden of risk continues to be the best move.

We’ve identified different types of risks and discussed several mitigation strategies. Now, it’s time to put the above into action and see how you can mitigate risks.

Practical steps you can take to mitigate risk

Risk mitigation steps need to be practical. It won’t help your business if you can’t figure out how to actually mitigate the risks you’re facing.

The following five steps will help you figure out a way forward through your risk mitigation process. Let’s break it down.

1. Identify

Before developing any plan, you may want to identify any risk that could impact your project or wider business operations. In this stage, it’s important to collaborate with a broad selection of stakeholders with different business perspectives to give yourself the best chance of identifying all possible risks.

For projects, project documentation can act as a valuable source of information. Review similar projects for hints about potential risks you might encounter.

Now you’ve got a list of all your possible risks, it’s time to assess them by analyzing the likelihood that they will occur and the degree of negative impact your business would face.

Your actions for each risk will depend on which category they fall into after your risk assessment . For example, as we mentioned earlier, you might decide to accept all “Low” category risks, reduce or transfer “Medium” risks, and avoid all “High” category risks.

At this point, you’re deciding on your mitigating action and putting strategies in place. Make sure to record each risk, its category, and your chosen prevention measures in a risk register.

This is a resource for all stakeholders to refer to and understand the plan and which actions to take if needed. A risk register will prevent confusion down the line, helping your team stay organized and aligned if risks occur.

On monday.com, you can get as detailed as necessary, and add risk owners, dates, and statuses for a fully actionable plan:

Businesses aren’t static and projects frequently change. It’s essential to regularly monitor each risk to check its category and mitigation strategy.

You can set up times in your weekly meetings or daily stand ups to quickly review risks. You can also use several statistical tools — such as S-curves — to track project progress and flag any changes in the risk profile for key variables, such as project cost and duration.

Sharing information on risks, best practices, and mitigation approaches can make your business’ risk mitigation strategy even more effective. Keeping risks at the forefront of stakeholders’ minds is vital for informed decision-making, and regular reporting may surface other risks that haven’t been identified yet.

The most effective risk mitigation strategies make risk reporting part of regular business operations by weaving it into the daily or weekly workflows. One way to easily implement reporting is with the built-in reporting capabilities and pre-built risk management templates on monday.com Work OS.

How monday.com can help you mitigate your risk

monday.com Work OS brings visibility and automation to your risk management strategy, allowing you to identify business risks across all departments and present them in a single risk register and mitigation plan.

Customization

The platform is highly customizable, so you can view, track, and report on your data at a business, functional, team, or project level, depending on your needs. With a few clicks, you can change your risk mitigation plan as things progress and alert your team or stakeholders to those changes.

Choose from pre-selected statuses to keep everyone informed, or change the text and the label color to make them your own:

Automations

The powerful automations immediately notify risk owners and stakeholders of any changes and enable them to take action. Use the monday.com Workflows Center to create custom processes that update stakeholders when important dates arrive, notify the right people when a status changes, create dependencies as needed, and much more.

Collaboration

On monday.com Work OS, it’s easy to collaborate on risk identification and categorization. Anyone can view, share, and annotate documents and tag colleagues to ask questions, gain clarity, or inform, which means everyone stays aligned and in agreement on the way ahead.

Visualization

Teams can view the strategy in several different ways according to what works for them. From the table view to dashboards, charts, Kanban, and others, it’s easy to get the full picture of events and action items.

Centralization

Lastly, keep all important files and documents in one central place. You can even create documents on monday.com with Workdocs, a tool that allows your team to seamlessly collaborate on new ideas, outlines, or proposals without disrupting each other.

You can also embed monday.com boards, dashboards, videos, and more directly into your Workdoc. Each component will automatically sync and update as you work, so nothing falls through the cracks.

Help future-proof your business with monday.com risk mitigation

It’s impossible to remove all business risks — however, early risk identification provides the best chance of mitigating them to levels your business can handle.

With monday.com, businesses can easily identify, classify, and manage risks. Take the first step towards risk mitigation by downloading our free risk register template .

FAQs about risk mitigation

What’s the difference between risk mitigation and risk management.

Risk mitigation is a part of the risk management process. While risk management encompasses the broader process of identifying, analyzing, and addressing risks, risk mitigation focuses explicitly on taking actions to reduce the probability of risks occurring and minimize their impact.

What is a risk mitigation plan?

A risk mitigation plan is essential for identifying, assessing, and reducing risks to a project or organization. It typically involves identifying likely risks, prioritizing risk preparation and responses, and monitoring and updating the plan accordingly. 

What is a key risk indicator (KRI)?

A key risk indicator (KRI) is a metric that measures the likelihood of an adverse event occurring and its possible effects on the organization. KRIs also consider the organization's ability to absorb the impact based on its current resources.

• Project change management
• Project risk management

Don’t miss more quality content!

Send this article to someone who’d like it.

Total Rewards

Newfront works with clients to curate competitive benefit packages that attract, retain, and reward top talent.

Industry Offerings

Our dedicated experts serve clients across a variety of industries and specialties

Discover how Newfront makes a difference for clients

Discover Newfrontiers

Newfront unveils its Premier Total Rewards Point-Solution Program

Four Essential Components for Manufacturing Risk-Management Programs

By Phil Huffman | Published May 9, 2024

Manufacturers are the core of the global economy and, today, they face more risks than ever, including cyber threats, supply-chain disruption, eco-terrorism, climate catastrophes, war, and a host of other factors that threaten production. While no organization can see around every corner, those that make the effort to identify, connect, and counter risks will win in this new—and increasingly complex—normal. 

Despite the clear and present dangers, many companies fail to prioritize risk-management programs, relying solely on traditional insurance coverage, a strategy that falls short in today's volatile environment. Not to mention that, in the current insurance landscape, many insurers demand a risk-management plan to give you desirable coverage…or to cover you at all.

As an insurance producer who helps a variety of manufacturing clients build out risk-management programs, I’ll share four components that every executive team should consider as they work to protect the long-term viability of their business.

Build a culture of safety around the reality of risk Business operators are inherent risk takers. Without risk, your company can’t grow and you can’t transform your industry. Risk management is a function of understanding what those risks are and aligning your internal stakeholders on mitigation—from the boardroom to the factory floor.  Begin with buy-in from your board of directors and executive team. Their support is a must for getting HR, safety teams, directors of insurance, legal, IT, and others committed. 

Evaluate risks, large and small One of the best risk-management cultures I’ve encountered wasn’t from a Fortune 500 company, but a privately-held, family-owned business in the Midwest. They committed to educating their entire executive team through annual risk summits, researching scenarios and building out plans. Incredibly, this company worked through pandemic risks two years before COVID-19 emerged.  Working through existing problems, planning for potential future issues (both large and small), mapping out how those events could impact the entirety of your business and its assets, and then executing on whatever those plans are, all while keeping the receipts along the way to demonstrate what you’ve done and are planning to do, is an exhausting approach—but a necessary one. 

Consider your people, physical assets, balance sheet, and P&L The foundation of an excellent risk-management program comes from considering four key elements: Your people, your physical assets (such as factories or equipment), your supply chain, and your P&L or ability to produce revenue. You may also consider environmental impacts, investors, creditors, and so on, but these four points are the most critical to evaluate for all companies. Once you’ve identified assets that could be put at risk, quantify the potential damage. Most sophisticated brokers can perform modeling on your behalf to help you understand the probability and severity of an incident, and whether you’re correctly protected by your insurance. Next, there are several critical areas to address in terms of risk management implementation: Training and education, including how you inform employees about the availability of onsite clinics or help them understand the other aspects of on-the-ground safety. Think about what teams should be involved (likely the risk team, safety team, and HR) and how you can reiterate safety throughout the employee lifecycle. Worker safety programs, which includes safety gear, training, and established boundaries. I always involve carrier partners, welcome their input, and ask what they may offer my clients along the way. This helps carriers feel invested in the process—and it makes sure we have all our bases covered. Many insurers also offer training or assistance with required expenses. Some insurance companies deliver the training or will give you money toward the cost of buying PPE. Housekeeping standards and knowing who owns different aspects of your risk-management process. Consistent coaching and rewards for good behavior must be employed. Employee mental health and well-being , promoting a culture where your team can feel safe voicing their opinions and pointing out issues on the shop floor. Leaders who listen and make changes create a safer workplace. You’ll also need to determine how you’ll measure your success in your risk-management program. A risk-management committee can continue these conversations and create a culture of safety, and your broker can help with implementing effective strategies and quantifying progress towards your desired outcomes.

Plan how to regroup after an event The true test of a risk-management program lies in the aftermath of an event. Companies must be prepared to spring into action. Smaller and middle-market manufacturers will often lean on their broker and insurance company to help them handle the situation. However, organizations will be up running faster after a crisis if they have risk management as a core of their organization. Whether it's a supply chain disruption, a cyber breach, or a workplace accident, having a well-defined response plan is paramount. In the case that you don’t have a robust risk-management plan before an event, you could face catastrophic loss. If you’re able to recover, you’ll likely need to create a risk-management roadmap to prevent your company from being dropped from your current provider or to regain coverage from a new insurer. 

I recently toured a facility with a lobby covered in decades worth of safety awards—it looked like a museum. This display was not just for the benefit of visitors, but a source of pride for the entire organization. Their risk manager beamed as he told me how they just won their eighth President’s Award. Creating a culture like that can go very far in not only improving your relationship to risk, but becoming a better company. 

By investing in proactive risk-management measures, companies can not only mitigate potential threats but also enhance the company’s long-term viability and drive sustainable growth. Moreover, when you’re negotiating in the market and trying to find insurance partners who will take your risk onto their balance sheet, you need a very clear picture of all the reasons they should work with you. If you’ve done the work of establishing a risk-management plan, then you’ll get credit for it.

Phil Huffman

Automotive & Manufacturing Leader

Phil Huffman is the Automotive & Manufacturing Leader at Newfront. Specializing in the manufacturing, construction, energy, real estate, technology, and healthcare sectors, he has worked with organizations of all sizes to drive financial impact via risk management programs. Phil is a 2022 Risk & Insurance Rising Star winner.

Related articles

Newfront Introduces AI-Powered Insurance Tools to Clients

July 20 • 2023

Congratulations to the Newfront Brokers Chosen as 2023 Power Broker Finalists!

April 4 • 2023

The Top 10 Employee Benefits Trends for 2023 (Some will surprise you!)

October 29 • 2022

Explore the new frontier with us

A brokerage for the 21st century

We are transforming the risk management, business insurance, total rewards, and retirement services space through the combination of elite expertise and cutting-edge technology. Newfront Insurance Services is a trade name licensed to sell insurance products in all 50 states, the District of Columbia, and Puerto Rico. See this  link  for a list of our licenses.