The Strategic Value of a Consultant: Risk Mitigation
As a business owner, risk is an issue you have to face. Uncovering specific risks is both challenging and time consuming. If you miss even one, having an event occur could result in a significant reduction of your bottom line. Even if you uncover all of your risks and try to eliminate them, eradicating some may be prohibitively expensive and impede business growth. You need to create a plan for mitigating risks to manage adverse outcomes. Hiring a consultant to handle risk mitigation is the key to finding a balance between peace of mind and profitability.
Risk Management Process
Because your business faces many risks, you need risk mitigation to be a core part of strategic management. Risk management helps to uncover and manage the risks facing your company and increases your odds of reaching business objectives. An effective process includes identifying risks surrounding business activities, assessing the likelihood of an event occurring, knowing how to respond to those events, implementing systems to handle the consequences, and monitoring the effectiveness of the approaches and controls. Your process of risk mitigation can improve decision making, planning and prioritization; help to more efficiently distribute capital and resources; anticipate potential issues; minimize potential damage; and significantly increase the probability of delivering your business plan on time and within budget.
Risk Evaluation
Risk evaluation helps to determine the significance of risks and decide whether to accept, minimize, reduce, or prevent them. A consultant may begin by uncovering risks, considering the consequence and probability of each, and ranking them by high, medium, or low probability according to business needs. The significance and likelihood of the risk occurring may be rated on a scale of 1 to 10, 1 being least significant and 10 being most significant, then plotted on a risk map. The map provides visualization of risks in relation to each other to determine their extent and plan controls to implement to mitigate the risks. The risks may be compared to your business plan to determine which could affect your objectives, legal requirements, costs, and investor concerns. The consultant may decide to accept a risk if the cost of elimination is prohibitive; transfer the risk with insurance; reduce the risk with safety measures; or eliminate a risk by changing how a product is produced.
Preventative Measures
Risk mitigation involves putting processes and controls in place to deal with consequences of potential threats to your business. For instance, financial reserves may be set aside to ease cash flow problems. Such processes and controls help to ensure business continuity if adverse events occur. Because risk assessments evolve due to internal or external changes or as your business grows, the assessments should be regularly reviewed.
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