Identifying business risk

There are many different types of business risk. Risks can be internal and external to your business. They can also directly or indirectly affect your business's ability to operate. Risks can be hazard-based (e.g. chemical spills), uncertainty-based (e.g. natural disasters) or associated with opportunities (e.g. taking them up or ignoring them). The Australian standard defines risk as 'the chance of something happening that will have an impact on objectives'.

Types of risk

The types of risk you face are specific to your business and its objectives. To effectively manage risk you should prepare for internal and external scenarios that may directly affect your business.

Direct risks to your business

Some common risk categories are:

You should use this list as a starting point for thinking broadly about the types of risks that could impact your business. You may discover that you need to consider other important areas of risk that are not listed here. Remember that perceived risks may also impact your business.

Indirect risks to your business

People often make the mistake of overlooking things that don't directly impact their business and are therefore unprepared to deal with change. For example, while your business might not be directly affected by a natural disaster, you may still suffer if it affects your suppliers, customers or general location.

Consider how these scenarios could affect your business:

  • If your suppliers are affected, you may run out of the products you sell, or the materials you need to make products.
  • If your customers are personally affected, their priorities may change and you could experience a reduced demand for your products or services.
  • If your general location is affected, you and your customers may not be able to access your premises, or your utilities could be affected. For example, you could lose power, which could mean you:
    • will not be able to operate your business
    • may need to throw out any perishable goods and replace them, which can be costly.

Managing risk in your business

The process of identifying risks, assessing risks and developing strategies to manage risks is known as risk management. A risk management plan is an essential part of any business as it helps you to understand potential risks to your business and identify ways to minimise them or recover from their impacts.

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