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Strategic Risk Assessment Template, Examples, & Checklist for 2022

The first step in building a risk management plan is to conduct an initial risk assessment. What sets a strategic risk assessment apart from other risk assessment methods is that it is driven by the business’s core strategies. Get up to speed on strategic risk assessment with a checklist, template, and examples below. 

What Is a Strategic Risk Assessment?

A strategic risk assessment is a systematic, continuous process for organizations to identify its strategic risks and understand how those risks are being managed across the business. “Strategic risks” are the risks that are most consequential to the organization’s ability to execute its strategy and achieve its objectives. They entail the risk exposures that can ultimately impact shareholder value or even threaten the business’s survival. 

Planning a Strategic Risk Assessment

The strategic risk assessment process should be led by management, but receive input from and be reviewed in conjunction with the Board. The outcome of this risk assessment is to achieve consensus, among Board members and management, around the top key risks facing the organization. This process aligns with COSO’s 2017 ERM framework and is based on research by Dr. Mark Frigo, Director of the Center for Strategy, Execution, and Valuation at DePaul University, and Richard Anderson, a retired Partner at PwC and a clinical professor at the Strategic Risk Management Lab at DePaul. 

Risk Assessment Checklist

Strategic Risk Assessment Template

1. understand the strategies of the organization.

The first step of the risk assessment is to develop an overview of the organization’s key strategies and business objectives. For some businesses, this data may already be well-developed and formally documented. If not, the risk assessment team can leverage examples such as The Return Driven Strategy model to understand and identify the strategies most critical to achieving the organization’s overall objectives. This is a crucial step in helping management and the Board eventually prioritize the potential risks to these strategies.  

2. Collect data and views on strategic risks from the organization

The second step is to collect information from the organization regarding its strategic risks. This can be achieved by:

• Reviewing financial reports and investor presentations
• Interviewing key executive leaders regarding what they view as strategic risks
• Surveying business leaders and other personnel with views on risks, e.g. compliance, internal audit , and external audit teams

It can be helpful to use the information gathered on strategic risks in Step 1 to frame these interviews and surveys around the business’s key strategies. It can also be useful to interview key executive leaders regarding what they view as potential emerging risks in addition to gathering their feedback on strategic risks. This is a good time to consider incorporating  risk assessment analytics  to the data you gather on strategic risks. 

3. Prepare a preliminary strategic risk profile

The next step is to utilize the results from steps 1 and 2 of the risk assessment planning to develop a preliminary profile of the organization’s strategic risks. The risk assessment team can use the Strategic Risk Management Model as a template to help assess the risks related to each of the top strategies identified. Ultimately, this profile should contain a list of the top risks to the organization’s strategy and objectives and their potential severity or ranking. How detailed this profile is, and how it will be presented, should be carefully catered to the culture of your organization. Color-coding risks and using visual heat maps may be helpful in presenting this information to management and the Board for review and discussion.

4. Validate and finalize the strategic risk profile with management and the Board

Upon presenting the preliminary strategic risk profile to leadership, the next step is for the risk assessment team to facilitate a discussion among key executives to help refine, validate, and finalize the risk profile. The ensuing cross-dialogue and conversations about risk and opportunity are among the most valuable conversations for shaping business strategy, as they unite executives across the organization to share their unique perspectives and collectively vet and prioritize the organization’s top key risks. 

5. Develop a strategic risk management action plan

This step entails leveraging the results of the previous steps to produce a strategic risk management action plan to help manage and monitor the identified strategic risks. The action plan involves developing an appropriate risk response (accept, avoid, pursue, reduce, share) to each critical risk identified in accordance with the organization’s risk appetite. The consolidated action plan should prioritize these risk responses and allocate resources across them. Best practice indicates the action plan should also include a charter that: 

• Has a formal statement on the organization’s risk appetite
• Assigns responsibilities and accountability for risk monitoring and actions among management, internal audit and compliance

6. Communicate the strategic risk profile and action plan

Once the strategic risk management action plan has been developed, it should be validated and finalized by management and the Board. Once finalized, this profile and plan must be communicated with the organization in order to help develop and build the organization’s risk culture. 

7. Implement the  enterprise risk management action plan

The value of performing a strategic risk assessment is realized when the organization implements the resulting action plan to manage and monitor its strategic risks. However, enterprise risk management should not be regarded as a one-time, annual procedure, but as a continual, ongoing process that can be built upon and strengthened. As such, these steps should be repeated as frequently as needed in response to significant external events that can affect the business, such as the 2008 financial crisis or the COVID-19 crisis. Furthermore, leveraging risk management software can help streamline and centralize the risk assessment process, creating the foundation for a mature ERM program. To learn how AuditBoard can help you manage your risk management plan from end to end, contact us by filling out the form below. 

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10 Free Risk Assessment Templates and Examples (Excel and ClickUp)

ClickUp Contributor

November 29, 2022

Risk assessment tools save project managers time and resources by clarifying potential risks before the team gets to work.

Research shows more than 60% of projects are often beyond budget, late, or fail to deliver according to specifications. By using effective risk assessment strategies, you are more prepared to prioritize threats and interruptions to your project. And as a result, the overall success rate of the project will improve.

We’ve put together a list of 10 free risk assessment templates and use case examples to fit your project or program requirements. Whether you need to address the safety hazards of potential equipment or share a risk rating document with teams and stakeholders—we got you covered!

What is a Risk Assessment Template?

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A risk assessment template is a resource to assess risks early and develop an actionable response plan. Depending on your industry type, a general risk assessment includes:

Risk identification

• Impact area
• Probability
• Level of impact
• Mitigation plans

This type of assessment template breaks risks down into varying stages, often using spaced tables for you to document identified threats and which parties are at risk. Risk templates also include a tool for assessing the likelihood and severity of risks.

10 Free Risk Assessment Templates to Try

A technical and effective way to understand what to prioritize in your business model and new idea list is by understanding the worth of these features and the degree of risk linked to the implementation.

ClickUp’s Value Risk Matrix Template helps you go through the risk matrix for each possible risk that may occur. It’s a great way to practice proactive risk management . And since it’s a simple template, you can easily walk through the process and fill the value risk matrix quickly.

Here’s how you can use this risk assessment template:

• Create a task for each idea
• Input or select the person responsible for the idea or the plan execution
• Attach the file that contains all the information (i.e. research, cost analysis, etc.) about the idea/new feature
• Classify whether the idea/new feature is for your customers, admin, employees, or for the business in general

An assumption grid helps you identify various assumptions from your business model. The grid plots these assumptions on two separate axes:

• Low-impact assumptions with little information available
• High-impact assumptions with little information available

Visualizing these assumptions helps you mitigate risks, make judgment calls, and overcome uncertainties. The ClickUp Assumption Grid Template is similarly a type of decision-making tool.

You can easily determine what the big boxes represent by checking the Legend. Each box has a corresponding color with added meaning.

• Yellow = Certain, High Risk
• Red = Uncertain, High Risk
• Green = Certain, Low Risk
• Grey = Uncertain, Low Risk

One of the most crucial parts of managing risks is to operate strategically to address any potential issues that may happen when managing a specific project.

With this template, you can document risks and response actions to manage each risk. It also helps you track potential risks and implement preventative measures before the risks happen. The ClickUp Risk Register Template is essential to successfully manage risks identified and logged on the register with actions to be taken to respond to the risk.

Responses should be regularly reviewed to monitor the progress. This risk assessment template offers several benefits, including:

• Collecting potential risks and preparing proper actions for them
• Assigning direct team members to monitor and prioritize tasks
• Categorizing risks by type ( Risks Response , Risks Status , and Risks by Level )

ClickUp’s Pi Planning Template helps you get a perfect overview of your PI Planning process with step-by-step frames that guide you through the entire risk assessment process.

The template gives you a clear picture of your team members’ backlog, including capacity, workload, and risks. Note that the number of sticky notes containing identified risks may shrink or grow as your team decides on mitigation approaches during the planning process.

The PI Planning Template is divided into four main boards to organize your PI Planning event:

• Teams Board : Includes iterations, tasks, and objectives for each specific team
• Program Board : Includes features, dependencies, and milestones
• Agenda Board : Includes schedule, agenda, and presenter
• ROAM Board : Includes program risks and obstacles

A job safety analysis should be conducted in workplaces to identify potential hazards that could cause major or serious injury such as hazard exposure, hazardous substances, and procedure changes.

The ClickUp Job Safety Analysis Template organizes key information all employees can access in a single view, including:

• Site location address
• Possible risks/hazard
• Countermeasures/Department
• Protective equipment
• Additional notes
• PDF Files demonstrating the proper steps

This is a basic risk assessment template in Excel designed to help you take the initial steps to standardize your processes. You can easily determine the data that should be collected from your business areas, outline suggested response selections, and define key terms.

Regardless of the risk events, configuration and assessment parameters, the risk assessment template in Excel can help you manage risks before they occur.

Accurate finance and accounting risk assessment is essential and can make or break your personal or business finances. This professionally built risk Excel risk assessment template gives you valuable insights into your accounting risk level.

It also helps you provide all the necessary details about your business product requirements . In addition, accurate costing of purchased products is crucial to ensure your business does not suffer unnecessary losses.

The free risk matrix template from Excel takes any potential threat and determines the impact and extent it could have on a particular project. This template helps you create a risk management process to highlight and correct issues before they become serious problems.

It also serves as a communication tool to let the team members know the risks that might arise during a project. This allows everyone to alert others if an issue becomes known and where it falls on the prioritization scale.

Bonus: RAID templates for risk management!

The number of risks to an IT landscape is enormous, including software or hardware failure, viruses, malware, scams, pace, and phishing.

Human errors, as well as malignant threats from fraud, hackers, security breaches, and denial-of-service attacks also exist. Natural disasters like fire and floods also damage an IT system carrying valuable data.

With the Excel IT Risk Assessment template from ProjectManager, you can take into account the following:

• The number of equipment and personnel needed to continue operating
• How long it takes to restore the data or system functionality 
• System and data needs

Identifying risks is just a single step of the risk assessment process. The subsequent steps include other activities such as risk strategy, monitoring, and funding.

The Excel Management template helps you determine the likelihood of risk occurrence and the potential impact through risk analysis. It also helps understand the project’s performance and quality. As a result, you can easily implement adequate response and risk mitigation.

A good risk assessment template is easy to update, creates consistency for future work, and simplifies the creation process. If your company has specific criteria for assessing risks, using a template will ensure everyone has the same information to take the correct risk and control measures. Here are four key processes a risk assessment template will include:

This process needs dedication and creativity as it focuses on highlighting potential risks that might occur and impact project metrics. There are several methods for identifying potential threats in your organization. Your project team can brainstorm possible hazards and transform the findings into a risk checklist.

Risk analysis

This goes beyond identifying risks and determines the criticality of the risk. This is where you assign both qualitative and quantitative values to possible risks and analyze the potential and strategies to minimize them. Risk analysis helps you understand the risks’ likelihood of occurrence and potential impact. This way, you can implement the proper mitigation and response.

Risk response and mitigation

Risk mitigation helps design and implement strategies to reduce the occurrence and the impact of the risks. The primary objective is to minimize the likelihood of risk incidence as much as possible.

Risk control

Risk monitoring and control are also part of your assessment template. It helps ensure that the plans are carried out properly. As a result, your template should use the risk monitoring and controlling function to guarantee that your assessment and risk mitigation strategies are effective.

Developing a Powerful Risk Assessment Plan With ClickUp

Without performing a risk assessment at the initial stages of your project, you won’t have the advanced preparation needed to prioritize safety controls.

Empower your team stays ahead of potential hazards with the best risk assessment tools and a productivity platform like ClickUp.

ClickUp makes it easy to plan, manage, and report on projects from anywhere. Get real-time project visibility and report on key metrics with automated workflows and Dashboards to keep your team informed and connected!

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Business risk assessment: what it is & why you need it Chevron down rounded

Business risk assessment: what it is & why you need it.

Updated 29 August 2023 • 6 min read

What is a business risk assessment? 

A business risk assessment helps you identify, analyse and prioritise risks. Businesses use risk assessments to:

minimise or eliminate risks

protect against potential threats

improve decision-making.

Risk assessment for business plan

When you’re putting together a business plan , it’s important to include a business risk assessment. Completing this section helps business owners to: 

understand what risks they face

develop strategies for minimising or eliminating those risks

allocate resources effectively to manage risks

monitor and review risks on an ongoing basis.

This means that the business owner has a documented strategy in place to handle when things can — and do — go wrong. This gives them better control over the business and its trajectory, while also giving potential investors assurance that the business is well managed and their investment is sound.  

The different types of risks businesses face

While it may be difficult to catalogue every risk a business may face, you can do a risk assessment based on types of risk. These categories may include:  

Hazard-based

These are risks from dangerous workplace situations that could cause harm to people, property or the environment. Examples include fires, floods and chemical spills.

Opportunity-based

This risk comes from choosing one opportunity over another. When you dedicate your resources to one opportunity, there’s always the chance that a better one will come along or the current one won’t go as planned. Examples include investing in a new product line or moving to a new location.

Uncertainty-based

This risk is present when the outcome of a situation is uncertain. Examples of business risks include legal action, damage from natural disasters, and the loss of important customers or suppliers.

Operational 

This type of risk comes from the day-to-day running of your business. Examples of operational risk may include equipment failure, employee error or theft.

Reputational

A risk to your business' reputation can include negative media coverage, product recalls and data breaches. 

Cyber security

Cyber security is a risk for all businesses, including small and medium-sized organisations. Any data loss, leak or compromise can cost a business severely — both financially and in reputational damage. 

How to do a business risk assessment (plus template and example)

1. identify the different types of risks for your business..

To identify the risks to your business, consider what could go wrong and why that might happen. Consider holding brainstorming sessions with your employees or reviewing past incidents to get started.

2. Assess the likelihood and potential impact of each type of risk.

You’ll want to decide the likelihood and potential impact of each type of risk. For example, the risk may be unlikely to occur through to very likely to occur. Likewise, the impact of the risk may be negligible through to severe. Doing this assessment will help you decide what to prioritise and where to allocate resources.   

3. Prioritise the risks and develop strategies for mitigating them.

Once you’ve identified and assessed your risks, you’ll need to develop strategies to mitigate them and lessen their potential negative impact. This could involve taking out adequate business insurance or putting business continuity plans in place. 

Business risk assessment template

The Australian Taxation Office (ATO) has developed a business risk assessment template that you can use for your risk assessment.

The template includes questions to help you identify and assess risks.

Business risk assessment example

If you own a small business, you might not think you need to worry about conducting risk assessments. But all businesses can face risks that could significantly affect their operations. Consider the following example:

You own a small retail business with one store. Your primary source of income is from selling products online, but you also have a small number of customers who visit your store in person.

A customer tells you they see a mouse in your store. This is a reputational risk, as it could damage your business’ reputation if word gets out. It’s also an operational risk if it leads to damaged inventory.

In this case, you'd need to assess the likelihood of that risk and the potential damage it could do to your business reputation or operations. Based on this assessment, you can decide how best to deal with the risk.

This is just one example of the innumerable risks businesses can face. Conducting a thorough business risk assessment prepares you for just about anything that comes your way.

Tips for mitigating risk in your business

Risk is part of life — it can’t always be avoided, but there are strategies you can put in place to mitigate its impacts. Consider the following: 

Have adequate insurance coverage to help mitigate the financial impact of risks such as fire, theft or liability.

Develop contingency plans so that you can continue operating if an incident, such as a natural disaster or power outage, occurs.

Implement risk management processes and procedures. This could involve anything from regular risk assessments to employee training on identifying and dealing with potential risks.

Regularly monitor and review risks and make sure you have effective mitigation strategies in place.

Maintain good relationships with suppliers and customers. This can help to minimise the impact of risks such as supply chain disruptions. Also, ask for feedback on their experience with your products or services, so you can identify potential risks before they become major problems.

Have strong internal financial controls and IT security measures.

Stay up to date on changes in laws and regulations. This will help you avoid compliance-related issues, including risks specific to your industry and general risks all businesses face.

Disclaimer: This is general advice not meant to replace professional guidance. When seeking out someone to help advise you on business decisions, find somebody with the accreditations to assist you.

Minimise your IT risk with MYOB

With MYOB’s business management platform , you can look after your finances, invoices , payroll and more, while maintaining compliance and data security at all times. Our cloud-based software is scalable and affordable, catering for sole traders through to mid-sized enterprises . With MYOB, your IT is future fit — so you have one less thing to worry about.

Sign up today and try FREE for 30 days .

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How to Create a Project Risk Management Plan

By Kate Eby | February 27, 2023

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Teams can use a project risk management plan to identify and assess the potential risks to a project. We’ve gathered expert tips on creating an effective risk management plan, as well as step-by-step instructions for creating an example plan.

On this page, you’ll find information on what to include in a project risk management plan and how to create a plan , as well as step-by-step instructions for completing an example project risk management plan .

What Is a Project Risk Management Plan?

Project teams create a project risk management plan , a document that helps identify and assess potential risks to a project. The plan outlines how your team will analyze and mitigate the potential risks to ensure project success.

The project risk management plan is one of the most important documents in project risk management . You can learn more about project risks in general — as well as specific types of project risks — in our comprehensive guides

What Does a Risk Management Plan Cover?

A risk management plan should cover a number of areas detailing potential project risks and how your team will deal with them. It will include a description of the project, along with how your team will identify and assess risk.

At a minimum, your project risk management plan should include the following details:

• Project description, including its purpose
• The team plan for identifying, logging, and assessing potential risks
• How the team will identify broad categories of risk
• How the team will evaluate the severity of each potential risk
• How your team will continue to monitor risks throughout the project
• How team members will be assigned as owners of various risks
• Your organization’s tolerance for certain risks, along with criteria for a risk being too large to accept

“A risk management plan defines how the risks for a project will be handled to ensure that the project can be completed within the set timeframe,” says Veniamin Simonov, Director of Product Management at NAKIVO , a backup and ransomware recovery software vendor. “The plan should cover methodology, risk categorization and prioritization, a response plan, staff roles, and responsibility areas and budgets.”

“The risk management plan will address ‘What are we going to do? How are we going to do it? What are the processes we're going to follow?’” says Alan Zucker, Founding Principal of Project Management Essentials . “It may include things such as what are the major categories you're going to use to define your risks. It might also include some guidelines for assessing risks.”

Components in a Project Risk Management Plan 

A project risk management plan will include certain components and describe how your project team will use certain tools to understand and manage potential risks. Some components include a risk register, a risk breakdown structure, and a risk response plan.

Here are components or tools that a project risk management plan often includes or describes:

• Risk Register: A risk register is the document your project team will use to identify, log, and monitor potential project risks.
• Risk Breakdown Structure: A risk breakdown structure is a chart that allows your team to identify broad risk categories and specific risks that fit within each category. Your team can decide on the broad categories, depending on your project.
• Risk Assessment Matrix: A risk assessment matrix is a chart matrix that allows teams to score the severity of potential risks based on both the likelihood of each risk happening and the impact to the project if a risk happens.
• Risk Response Plan: A risk response plan is a document that details how your team plans to respond to each potential risk to try to either prevent it from happening or lessen the impact if it does happen. You can learn more about project risk mitigation . 
• Roles and Responsibilities: The risk management plan can provide details on the project risk management team, including the lead member for risk management. It also likely details the roles and responsibilities each team member will have in addressing and dealing with specific risks.
• Risk Reporting Formats: The risk management plan describes how the project team will document and report its work on monitoring and dealing with risks. It describes the risk register format that the team will use. It might also describe how risks will be added to or deleted from the register and how the project team will provide periodic summarized risk reports to top project and organization leaders.
• Project Funding and Timing: The plan will likely have a section describing the overall funding and timing for the project. That section also likely details funding for all project risk management work.

To determine what you need to include in your risk management plan, see the following requirements based on project size:

An Organization’s Risk Management Plan Often Doesn’t Change with Projects  

Many risk management experts emphasize that an organization’s project risk management plans might not change much from project to project. That’s because the plan sets out particulars that will be followed for all projects.

“Remember, it's just an approach document that answers the question: How?” says Kris Reynolds, Founder and CEO of Arrowhead Consulting in Tulsa, Oklahoma. “The company or the department as a whole should have a single risk management plan that gets built as you're building your project management methodology. And it’s your Bible. It’s your guidebook. 

“But it isn't going to change across projects,” Reynolds continues. “What changes are the artifacts, including the risk register. But your approach of how you're going to address risk or analyze risk or plan for risk is in the project risk management plan document. As a company or organization, you create that document, and it exists for a year or two years without changing.”

To create a project risk management plan, your team should gather important documents and decide on an approach for assessing and responding to risks. This process involves gathering support documents, listing potential risk management tools, and more. 

Consider some of these basic steps and factors as you begin creating the project risk management plan:

• Gather Supporting Documents: Gather and read through supporting documents related to the overall project, including the project and project management plan. It’s important for your project risk team to have a full view of project goals and objectives.
• Frame the Context: Make sure your team understands both the business value of the project and the impact on the organization if the project fails.
• Decide on Risk Assessment Criteria: Decide how your team will identify and assess important risks. That will require your team to have an understanding of which types of risks your organization can tolerate and which risks could be ruinous to the project.
• Inventory Possible Risk Management Tools: Make a list of risk management tools and documents that your team might use to help identify and manage project risk.
• Known Risks: At the start of a project, team members will be able to identify a number of known risks , such as budget issues, shortages of material, and human and other resource constraints, which are measurable and based on specific events. 
• Unknown Risks: At the start of a project, team members will not be able to identify a range of unknown risks that could impact your project. Those risks are not as easily or objectively measurable as known risks and can crop up at any point during a project. A main goal of project risk management is to help your team discover and address unknown risks before they happen.
• Unknowable Risks: Your team will not be able to anticipate unknowable risks that could affect the project, such as catastrophic weather events, accidents, and major system failures.
• Understand Human Bias: Studies have shown that people overestimate their ability to predict and influence the future. We often think we have more control than we do. Those biases can affect how we assess and manage risks in a project. We tend to give too much credence to what happened with past processes, fall into agreement with others in our group, and be more optimistic than we should be about how long a project will take or how much it will cost.  It’s important to account for all of those biases as your team identifies and assesses project risk.

Steps in Developing a Project Risk Management Plan

After your project team has gathered documents and done other preparation work, you will want to follow nine basic steps in creating a project risk management plan. Those start with identifying and assessing risks.

Here are details on the nine steps of project risk management to keep in mind while drafting your project risk management plan:

• Identify Risks: Your team should gather information and request input from team and organization members to determine potential risks to the project. Some specific risks can threaten many projects. Other risks will vary, based on the type of project and the industry. “If you're talking about a software project, you could have risks associated with the technology, resources, and interdependencies with other systems,” says Zucker. “If you have vendors you're working with, there may be risks associated with the vendors. There may be risks that are software- or hardware-specific. If you're working on a construction project, those risks obviously would be very different. ”You can learn more about project risk analysis and how to identify potential risks to a project .
• Assess Potential Impact of Each Risk: After your team identifies potential risks, it can assess the likelihood of each risk, along with the expected impact on the project if the risk happens. Your team can use a risk matrix to identify both the likelihood and impact of each risk. You can learn more about how to create a risk matrix and assess risks .
• Determine Your Organization's Risk Threshold and Tolerance: Your team will want to understand your organization’s risk threshold , or tolerance for risk. Organization leaders might decide that some risks should be avoided at all costs, while others are acceptable. Take the time to understand those views as you prioritize project risks.
• Prioritize Risks Based on Impact and Risk Tolerance: Once your team assesses the potential impact of a risk and your organization's risk tolerance for risks, it will prioritize risks accordingly. “Prioritize risks based on their disruptive potential for an organization,” says Simonov.
• Create a Risk Response Plan: Your team should then create a response plan for each risk that the team considers a priority. That response plan will include measures that could prevent the risk from happening or lessen the risk’s impact if it does happen.
• Select Project Risk Management Tools: Your team will need to decide on the best risk management tools to use for your project. That will likely include a risk register and a risk assessment matrix. It might include other tools, such as Monte Carlo simulations. Learn more about various tools and documents to use in risk management . 
• Select an Owner for Each Risk: Each identified risk should have an assigned owner. In some cases, a department might be an owner of a risk, but most often, the team will assign individuals to monitor risks. In some cases, the owner will be responsible for dealing with the risk if it happens. Teams can list the owners of each risk on their project risk register. 
• Determine Possible Triggers for Each Risk: As your team conducts a closer assessment of all risks, it should identify risk triggers where possible. Triggers are events that can cause a risk to happen. Your team won’t be able to identify triggers for all risks, but it will for some. For example, if you have a plant without sufficient backup power, a trigger could be warnings of a violent storm that could cause a power outage.
• Determine How Your Team Will Monitor Risks: An important part of your plan includes recording concrete details about how your team will ensure that it can continually monitor risks throughout the life of a project.

Risk Management Plan Examples, Templates, and Components

Examples of project risk management plans can help your team understand what information to include in a plan. The risk management plan can also detail various components that will be part of your team’s risk management.

Project Risk Management Plan Template

Download the Sample Project Risk Management Plan Template for Microsoft Word  

Download this sample project risk management plan, which includes primary components that might be described in a project risk management plan, such as details on risk identification, risk mitigation, and risk tracking and reporting.

Download the Blank Project Risk Management Plan for Microsoft Word

Use this blank template to create your own project risk management plan. The template includes sections to ensure that your team covers all areas of risk management, such as risk identification, risk assessment, and risk mitigation. Customize the template based on your needs.

Project Risk Register Template

Download the Sample Project Risk Register for Excel

This sample project risk register gives your team a better understanding of the information that a risk register should include to help the team understand and deal with risks. This sample includes potential risks that a project manager might track for a construction project.

Download the Blank Project Risk Register Template for Excel  

Use this project risk register template to help your team identify, track, and plan for project risks. The template includes columns for categorizing risks, providing risk descriptions, determining a risk severity score, and more.  

Quantitative Risk Register Template

Download the Sample Quantitative Project Risk Impact Matrix for Excel

This sample quantitative project risk impact matrix template can help your team assess a project risk based on quantitative measures, such as potential monetary cost to the project. The template includes columns where your team can assess and track the probability and potential cost of each project risk. The template calculates a total monetary risk impact based on your estimates of probability and cost.

Risk Breakdown Structure Template

Download the Risk Breakdown Structure Template for Excel

Your team can use this template to create a risk breakdown structure diagram that shows different types of risks that could affect a project. The template helps your team organize risks into broad categories.

Step-By-Step Guide to Creating a Project Risk Management Plan

Below are step-by-step instructions on how to fill out a project risk management plan template. Follow these steps to help you and your team understand the information needed in an effective risk management plan.

This template is based on a project risk management plan template created by Arrowhead Consulting of Tulsa, Oklahoma, and was shared with us by Kris Reynolds.

• Cover Section: Provide information for the cover section , also known as the summary section . This will include the name of the project, the project overview, the project goals, the expected length of the project, and the project manager.
• Risk Management Approach: Write a short summary of your organization's overall approach to project risk management for all projects, not only the project at hand. The summary might describe overall goals, along with your organization’s view of the benefits of good project risk management.
• Plan Purpose: Write a short summary explaining how the plan will help your team perform proper risk management for the project.
• Risk Identification: Provide details on how your team plans to identify and define risks to the project. Those details should include who is assigned to specific responsibilities for risk identification and tracking, as well as what information and categories will be included in your team’s project risk register.
• Risk Assessment: Provide details on how your team will assess the probability and potential impact of each risk it has identified. Your team should also include details on any risk matrices it plans to use and how the team will prioritize risks based on those matrices.
• Risk Response: Provide details on the ways your team can choose to respond to various risks. In the case of high-priority risks, that will include prevention or mitigation plans for each risk. In the case of low-priority risks, or risks that might be prohibitively expensive to mitigate, it might include accepting the risk with limited mitigation measures.
• Risk Mitigation: Provide more details on how your team plans to lessen the likelihood  or impact of each risk. Your team should also provide details on how it will monitor the effectiveness of prevention and mitigation strategies, and change them if needed.
• Risk Tracking and Reporting: Provide details on how your team plans to track and report on risks and risk mitigation activities. These details will likely include information on the project risk register your team plans to use and information on how your team plans to periodically report risk and risk responses to organizational leadership.

Do Complex Projects Require More Complex Project Risk Management Plans? 

Experts say that complex projects shouldn’t require more complex project risk management plans. A project might have more complex tools, such as a more detailed risk register, but the risk management plan should cover the same basics for all projects.

“The problem is, most people get these management plans confused. They then start lumping in the artifacts [such as risk registers] — which can be more complex and have more detail — to the risk management plan itself,” says Reynolds. “You want it to be easily understood and easily followed.

“I don't think the complexity of the project changes the risk management plan,” Reynolds says. “You may have to circulate the plan to more people. You may have to meet more frequently. You may have to use quantitative risk analysis. That would be more complex with more complex projects. But the management plan itself —  no.”

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A Sample Template for Conducting Business Risk Assessment

How do you conduct a risk assessment on an idea when writing a business plan? Or you need a sample business risk assessment template? I advice you read on. Every business involves some risks. This may be little or much depending on the type of business as well as many other market factors.

Identifying, outlining, and assessing the risks involved in a new business and developing strategies to manage those risks is an important, in fact indispensable step to take when planning a new business.

The Importance of Conducting Business Risk Assessment

By understanding potential risks to your business and outlining strategies to cushion their effects, you will help your business recover quickly if an unexpected incident occurs. For instance, a risk assessment will unveil workplace risks that you or your employees are exposed to. And it will help you meet your legal obligation for providing a safe workplace and reducing the likelihood of workplace mishaps that can impact negatively on your business.

Types of risk vary from business to business, but conducting a risk assessment and preparing a risk management plan involve a process that is common to all business. It goes without saying that the first step to take when conducting a risk assessment is to identify potential risks to your business. Understand the scope of potential risks will help you come up with realistic and cost-effective strategies for handling them.

When considering the types of risks that your business is prone to, it is very important that you think broadly. This is where many people go wrong in their risk assessment; they focus only on the obvious concerns like fire, theft, competition, etc. without paying attention to subtle but equally dangerous concerns.

Assessing your Business for Possible Risks

Only after assessing your business can you successfully identify the risks associated with it. Start by thinking about your critical business activities, which includes your main services, your resources, your employees and factors that could affect them or their work.

These factors include natural disasters, accidents, power failures, and illness. By assessing your business this way, you can work out those aspects that are indispensable to your business.

Conducting Business Risk Assessment – A Sample Template

After assessing your business to get a clear picture of it, you can start identifying the risks involved. Go through your business plan to see those things your business cannot do without, and list some possible risk factors that could cripple those indispensable things. Asking yourself the following questions will be of great help:

• How, why, when, and where are the risks likely to happen in my business?
• Are the risks coming from within or from external sources?
• Who might be affected if an incident occurs?

Don’t just think of what answers you have to these questions, write down your answers. Then start asking yourself as many “what if” questions as you can, using the various risks you have in your list? The following are examples of such questions:

• What if power supply ceases suddenly?
• What if key documents are destroyed?
• What if vital information gets lost due to hard disk crashes or virus attacks?
• What if an intruder gains access to confidential information?
• What if one of your best employees quit suddenly?
• What if your competitors reduced the prices of their products by half?
• What if your suppliers went out of business?
• What if the area you have your business in is affected by a natural disaster?

Also write down your answers to these questions. By now, your risk assessment is gradually taking a good shape. But you are not done yet. After identifying the potential risks to your business, brainstorm with other people, such as your financial adviser, accountant, staff, and other interested parties. This will help you get many more perspectives on risks to your business.

Aside the ones you have listed, think about the events that have affected other businesses already in market, especially your competitors. What factors led to those events? What were the outcomes of those events? Don’t you see them happening to your business, too ? Answer these questions, and you will be able to identify even more risks that may be from external sources.

Don’t forget to identify each step involved in your work processes and outline the associated risks. Think of what factors could hamper each step and how this could affect the rest of the process. Once you have identified the risks associated with your business as explained above, you will need to analyze the likelihood and consequences of each, and come up with options for managing them.

After completing your rough draft, review it, and reproduce it in a better and more presentable format.

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• Chapter 8: W riting your Company’s Profile
• Go Back to Introduction and Table of Content

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Home / Blog / Risk Assessment Template with Detailed Examples

Using a Risk Assessment Template: How to Identify and Manage Business Risk on a Risk Assessment Matrix

Business risk assessment can sound daunting. But the fact is, we assess risk and take risk control measures every day. We set alarms to address the risk of sleeping in and being late to work. We assess risk when we do research before purchasing a big-ticket item. Traffic is full of safety hazards, so we wear a seatbelt and keep our eyes on the road to mitigate safety risks. We take our health concerns to a doctor to assess any rising risks to our physical or mental health.

Business risk assessment is no different. It’s just a preventative measure to protect the health and safety of the organization. To help your team identify key risks and implement control measures, the Whiteboards app includes a Risk Assessment template . Use this template when developing product features or before launching a new project. 

Add product features or project tasks to virtual sticky notes. Identify the risk level of each issue by sorting them on the template according to likelihood and consequences. Decide which risks you’ll guard against, which risks you’ll control, and which risks you will just accept. Identify control measures and convert your sticky notes to Jira issues right from the template. Issues appear automatically in Jira using Whiteboards’ native two-way Jira integration . Users receive tasks right away, and risk control is underway.

Sign up for a free Whiteboards account to start using the Risk Assessment template and dozens of other templates. Address business risk proactively to protect the health and safety of your organization. Keep reading to learn more about Agile risk assessment and how to use the Risk Assessment template.

How do Agile teams do risk assessment?

The first step in agile risk assessment is making sure you’re truly agile..

Agile methodology has been criticized for not including a standard risk assessment protocol. It’s true that Agile principles don’t dictate specific risk assessment methods. Because of this, Agile businesses manage risk in a variety of ways. However, Agile processes also include certain risk control measures by design. Here are some ways being Agile can reduce major risks found in more top-down business approaches:

• Iterative development: Agile product features are planned, designed, tested, and adjusted in relatively short iterations. Iterative development cycles ensure early and continuous delivery of value to the customer. Regular testing and adjustment lower the risk of doing too much work before discovering a project is off track.
• Feedback loops: Agile teams follow a system of feedback loops throughout the development cycle. Regular input from knowledge workers and end users keeps all stakeholders on the same page. Diverse feedback minimizes the risk of missing key development considerations.
• Collaborative decision-making: Collaboration is at the heart of Agile product and project management. Team members collaborate regularly with each other, with other departments, and with external stakeholders. Everyone stays in the loop and contributes their ideas and expertise. Regular collaboration and continuous information exchange minimize the risk of “siloed thinking” – where knowledge is different from department to department.
• Customer-centered approach: Agile product development prioritizes the needs of the client or end user. It doesn’t matter how brilliant new features are if they don’t satisfy the target consumer. Agile teams update external stakeholders frequently and seek feedback proactively. Continuously assessing customer priorities reduces the risk of investing resources in the wrong initiatives.

Control risk upfront by building your workflow around these core practices. To review the basics, download our beginner’s guide, How to Go Agile the Right Way . Use this guide to help assess if your business is “being” Agile or just “doing” Agile. (There’s a big difference!) Take advantage of the ways Agile principles control risk and prevent common hazards in both product development and project management.

If you don’t follow one already, choose a tested framework for managing Agile workflows. Identify an approach that fits your team’s preferences for structure vs. flexibility. Scrum, Kanban, and their hybrids cover a range of options. To get started, read our Top 9 Types of Agile Methodologies, Beginner’s Guide . We’ve outlined the most popular methodologies and included helpful links for more information.

Being truly Agile is the front line of risk control measures. But even the most Agile of teams need to perform targeted risk assessment. Don’t assume the basics will cover you. Assemble your team and address risk proactively to guard the health and safety of your organization.

How do I approach risk assessment?

Risk assessment can feel like an overwhelming task. How do we identify, let alone control, each risk a business faces? The truth is, we can’t. But we can keep refining our risk assessment process and risk control measures.

To de-mystify risk assessment, consider how we manage risk daily. We take daily measures to protect our own health and safety and that of pets, children, and other adults. To examine this concept more closely, let’s consider one high-stakes risk assessment example: parenting small children.

Parents do risk assessments and take risk control measures every day. They modify their risk assessment over time to fit changing health and safety considerations. When a child learns to walk, parents must identify each new safety risk in the home environment. They block stairs with child gates and move fragile objects off the coffee table. Addressing well-known safety hazards, they keep small objects and plastic bags out of the toddler’s reach.

Parents continue to assess risk throughout all stages of the child’s development. They regularly identify additional risks to the child’s health and safety. They also identify risks the child presents to the safety of other people, pets, and property. Although this risk assessment is informal, parents follow similar procedures as a project manager conducting a business risk assessment. To manage the “project” of keeping kids safe and healthy, parents:

• know their child’s risk tolerance and risk-taking tendencies
• learn about common safety hazards from other parents, books, or information online
• draw from their personal experience (parents were kids once, too!)
• scan the child’s environment to identify potential health and safety hazards
• prioritize each risk based on the likelihood and consequences of the risk scenario
• guard against the most likely and/or catastrophic hazards (plastic bags, stairs)
• control mid-level risks (keep pens out of reach to protect the child from choking on pen caps or writing on walls or important documents)
• accept low-level risks (well-designed playground equipment is low risk and high reward)
• plan for unavoidable incidents (have a first aid kit and health provider information on hand)
• choose child caregivers who align well with the parent’s risk priorities
• adjust their risk assessment framework as the child grows and new information comes in

A business approaches risk assessment and implements control measures in much the same way. Parents don’t use a checklist, but this simple thought experiment shows the main points of any risk assessment strategy. We can translate each step in this risk assessment example to apply to business risk assessment. Instead of the health and safety of a child, Agile teams guard the health and safety of the product line, work projects, and the organization as a whole.

Like attentive parents, good managers know the risk tolerance of clients and knowledge workers. They use all available information to identify and prioritize risks. Then they implement targeted control measures. They give tasks to the right workers and adapt to new information to maintain the health and safety of the project. Like parents, Agile teams are already aware of many risks and control them every day. We manage risk each time we circle back for client approval, double-check an outgoing email, or submit a compliance report.

If your current projects seem healthy, formal risk assessment may feel unnecessary. Don’t let this lead to underestimating the need for systematic risk assessment. Formalize your risk assessment process and meet regularly to talk about risks and how to deal with them. Collaborate to identify risks from a number of angles. Establish risk control measures and create contingency plans for unavoidable risks.

Use our Risk Assessment template to help keep your risk assessment focused and effective. Sort your risks on the color-coded risk matrix to determine their priority level. Revisit the template regularly to account for new or changing risks. Think of risk assessment as a preventative step to protect the health and safety of the business and its stakeholders.

How do I prepare for a business risk assessment?

Get started by addressing risk assessment basics..

Whiteboards’ Risk Assessment template guides your team through a thoughtful risk assessment session. Before using the template, read through the questions and answers below. Decide when you will do a risk assessment, identify an assessment team, and create a risk assessment checklist.

When should my team do a risk assessment?

Companies typically perform a business risk assessment at key business junctures, or in response to new risk information. Here are the most common business risk assessment scenarios:

• Product risk assessment: Product managers assess risk at the start of each product development cycle. They analyze proposed features to determine risks involved in designing, developing, and marketing the product.
• Project risk assessment: Project managers perform project-specific risk assessment. They identify risks inherent in the project tasks as well as risks posed by the project. For instance, unbalanced workload distribution across projects risks bottlenecks in the larger corporate workflow.
• Pre-project risk assessment: Project managers also assess the risks of accepting a proposed project. This type of risk assessment is especially important when considering a project with unfamiliar parameters. Risk increases when a proposal differs significantly from past projects in scope, criteria, or resource requirements. (For a pre-project risk assessment, we recommend the Pre-Mortem template , which is tailored for doing risk assessment at this project stage.) 
• Regular risk assessment: Some teams build risk assessment into their schedule. For instance, a Scrum master may do a simple sprint-focused risk assessment at the start of each sprint.
• Responsive risk assessment: Consequences of unforeseen or underestimated risks can trigger a targeted risk assessment of a particular workplace practice.

Who should be involved in risk assessment?

Collaboration is key to effective Agile risk assessment. Involve key stakeholders in your risk assessment process. Design, marketing, and sales teams will each identify different risks and risk control measures. Diverse stakeholders also bring different levels of risk tolerance to the table. Collaborative risk assessment helps align everyone around a unified corporate risk control strategy.

Remember that collaboration itself is a part of risk mitigation. Certain risks may worry some team members more than others. Some risks may not occur to workers uninvolved in a certain part of the project. The way one team operates may even create risk for another team or the company as a whole. 

Honest and collaborative risk assessment creates space for each concern to be heard and addressed. Doing risk assessment and determining control measures collaboratively also reinforces shared risk ownership. Ultimately, everyone can rest easier knowing the main business risks are accounted for. Use the Risk Assessment template to identify risks and put them in perspective for the whole team.

How do I structure a risk assessment?

Business risk takes many forms. There are internal risks, such as team disorganization resulting in missed deadlines. There are external risks, such as a natural disaster affecting a supply chain. Each type of risk calls for different control measures.

In light of this complexity, there is no one right way to structure risk assessment. Any risk checklist you make will have overlapping categories. This is actually a good thing! Redundancies help you identify risk from different angles. Develop a working risk assessment checklist and refine it as new information comes in.

Here’s an example risk assessment checklist to get you started. We’ve arranged it by broad risk areas and included examples of how each area can pose risk to the organization:

• scope (unclear scope, inappropriate scope, scope creep)
• budget (unexpected costs, missed projections)
• scheduling (uneven workload distribution, poor estimations)
• quality (persistent bugs, unmet customer requirements)
• design (limited functionality, poor visual appeal)
• marketing (inadequate research, misleading advertising)
• morale (workers overloaded, confused, or unsupported)
• personnel (poor capacity, training, or competence levels)
• communication (key information not reaching external stakeholders)
• technology (outdated tech, tools don’t support workflow)
• economy (market fluctuation ripple effects, sector-specific market slump)
• compliance (costly or changing government regulations)
• procurement (supply chain slowdowns, vendor goes out of business)
• client (difficult to reach, unreasonable expectations)
• customers (target market ill-defined, shifting preferences)
• contractors (outsourcing difficulties, unreliable third parties)
• competitors (rising threats, innovation pace outstrips yours)

Again, don’t worry about creating the perfect risk assessment checklist. Cast a wide net. Identify key areas of risk control and update your list as you go.

How do I use a Risk Assessment template?

Gather your cross-functional risk assessment team. Have your risk checklist and any other relevant information ready. Estimates of how long a task will take, the latest budget report, and an analysis of the competition all help with risk assessment.

Add the Risk Assessment template to the whiteboard. If you’re doing risk assessment for product development, add proposed features to virtual sticky notes next to the template. When doing a pre-sprint risk assessment or a risk assessment for a project, write down upcoming tasks on sticky notes.

1. Sort risks by likelihood and consequences on the risk assessment matrix.

How you manage a given risk depends on the probability and severity of that risk. To reflect this, the Risk Assessment template ranks each risk according to its likelihood and potential consequences. 

Estimations, budgets, and market analytics provide hard numbers to help establish risk. From there, risk assessment relies on the collective input of the risk assessment team. Address each sticky note and identify the team’s main concerns. How likely is it that this task or product will present risk? What are those risks? What is the level of potential impact? Answers may vary. Reach a consensus or take a vote to establish each note’s risk level. Continue until all the sticky notes are added to the risk matrix.

2. Turn your risk assessment into actionable steps.

Once all sticky notes are on the template, use the color-coded matrix to target risk control measures. Manage each risk based on your available options. Your risk response will fall into one of four categories:

• Control the risk. High-level risk calls for high-level control measures. Start with your red and orange squares. What can you do to bring the risk level down? Can you shift a likely/critical risk to an unlikely/critical risk? Or can you prevent the worst-case scenario, shifting the risk level to likely/marginal? Identify the source of the risk. You might be able to control an internal risk through measures such as reorganizing workflow or streamlining technology. If the risk is external, consider the factors you can control. Can you switch to a more reliable vendor or contractor? Identify control measures and move the risk to its new square on the matrix.
• Share the risk. Can you redistribute a risk internally, or outsource it? A rare/catastrophic external risk like a severe weather event or a lawsuit is generally outsourced to an insurance company. The possible/marginal internal risk of a missed deadline may prompt you to shift certain tasks to a different team member. See if you can share risk better to shift your sticky notes left/down on the matrix.
• Accept the risk. Sticky notes on the green squares of the template will likely fall in this risk response category. No project is free of risk. If you can’t control or share a low-level risk, it may be worth accepting. Identify your contingency plan and move on.
• Avoid the risk. Any risk that doesn’t fit the other categories will end up here. If you still have sticky notes in the red and orange squares, your best option may be to avoid the risk altogether.

If your risk control measures require extra steps (like “search for a more reliable vendor for X”), write them on sticky notes and put them outside the Risk Assessment template.

3. Take action right from the Risk Assessment template.

Your risk assessment is done! All that’s left is turning your actionable steps into actions. Jira users can launch an action plan right from the whiteboard using Whiteboards’ deep native integration with Jira . If you did a product risk assessment, convert your sticky notes into Jira user stories. If, instead, you worked on a project risk assessment, convert your sticky notes into Jira tasks. Don’t forget the risk control measures you gathered outside the template. Choose Jira attributes and assign tasks to users. All issues sync instantly in Jira. 

Whiteboards-Jira integration works in both directions to support any type of Whiteboards meeting. Whatever template you use, simply import, modify, and create Jira issues. Update issues in batches to speed up the process. All updates appear instantly in Jira, and updates in Jira also appear on the whiteboard.

Sign up for the Whiteboards app to start using the Risk Assessment template today. The app has over 100 other templates that can help your team with product mapping, troubleshooting, retrospectives, and more. Store all your templates and meeting notes on Whiteboards’ vast virtual canvas. With flexible tools and strong two-way integration with Jira, you can hold more productive meetings on a virtual whiteboard. Part of mitigating risk is using better-integrated internal platforms. Use Whiteboards to streamline your Jira entry work and keep your collaboration centralized in one location for all users.

Angelika Troka

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How to Perform a Simple Small-Business Risk Assessment

How to Create a Simple Risk Assessment for a Small Business

According to Ready.gov , risk assessments spot potential problems, but a business-impact analysis identifies how these problems might affect a particular business. Since these two tasks go hand-in-hand, it is useful to describe them together. These are the three steps of a risk assessment and business impact analysis:

• Identify Hazards:  This step consists of simply listing which business risks a particular company might face. These could include acts of nature, fires, mechanical breakdowns, and even cyber attacks.
• Identify assets that could be at risk:  This step consists of identifying which business or external assets might be damaged by one of the hazards listed above. Some common examples are employees, customers, buildings, a business's reputation, and the environment.
• Analyze the impact:  The last step consists of figuring out what sort of harm could be done to the company assets. For example, the company could lose money in a lawsuit if a person gets injured; it could be fined for being out of compliance with regulations; or it might suffer a loss of customers after a cyber attack steals personal information from a sales database.

After analyzing all of these reports, whoever acts as the company's risk manager can try to mitigate each risk. For example, a safety program, smoke detectors, and fire extinguishers might reduce the risk of accidental fires. Better security could reduce the chance that hackers can steal valuable data. Of course, no company can take steps to totally eliminate every threat, but these are examples of good first steps. 

Next, this assessment will help companies buy the right insurance to protect them against the things that they cannot control. The more steps that companies do take to minimize threats, the cheaper that insurance premiums are likely to be. Risks assessments and impact analysis can help prevent losses and result in lower insurance premiums. For more ways to improve your risk assessment skills try  these tips .

Who Can Help With Small Business Risk Management?

On the topic of insurance, many agencies and insurers provide risk management services to their clients. Since these professionals make it their business to understand and reduce the risks that their clients face, they are often in a very good position to offer advice.

At Ventiv Technology, we are a risk management software company and we've been in the business of helping all sorts of companies manage risk for over four decades. Our ERM software solutions can help integrate risk management into every facet of business operations. Find out more about Ventiv  and how we can make your company less vulnerable to risks.

Jul 20, 2015

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How to Conduct a Risk Analysis for Your Small Business

Small business owners take risks every day. But if you put too much at stake, your business bottom line could suffer. To make sure your decisions are sound, conduct a risk analysis for your small business.

What is a risk analysis in business?

A risk is a situation that can either have huge benefits or cause serious damage to a small business’s financial health. Sometimes a risk can result in the closure of a business. Before taking risks at your business, you should conduct a risk analysis.

A risk assessment for small business is a strategy that measures the potential outcomes of a risk. The assessment helps you make smart business decisions and avoid financial issues.

Jason Olsen, serial entrepreneur and founder of Studios 360, Prestman Auto, and Automobia, explained in his article :

The key is to not only use optimism for reasons to take action, but also to utilize risk factors you uncover to guide your decisions. Yes, you must have courage to bet on your ideas, but you must also have the ability to take a thoughtful, calculated approach. It’s nearly impossible to remove all risk in any scenario, but what’s important is to make sure these troublesome areas are always considered and understood.”

Internal vs. external risks

Usually, a risk is either internal or external. Internal risks occur inside of your operations, while external risks occur outside of your business.

Internal risks are often more specific to your business and easier to control than external risks. Examples of internal risks include:

• Financial risks
• Marketing risks
• Operational risks
• Workforce risks

Though you can project external risks, they are usually out of your control. You might need to take a reactive approach to managing external risks. These risks include:

• Changing economy
• New competitors
• Natural disasters
• Government regulations
• Consumer demand changes

How to do a risk assessment

There is no one way to assess business risk. The assessment is not 100% accurate when it comes to judging your level of risk. A small business risk analysis gives you a picture of the possible outcomes your business decisions could have. Use the following steps to do a financial risk assessment.

Step 1: Identify risks

The first step to managing business risks is to identify what situations pose a risk to your finances. Consider the damage a risk could have on your business. Then, think about your goals and the rewards that could come out of taking the risk. Depending on your business, location, and industry, risks will vary.

Step 2: Document risks

Once you have a list of potential business risks, define them in a document. Develop a process to weigh the effect of each risk. Look at how much damage the risk could potentially cause and how hard it would be to recover. Set up a scoring system for risks, from mild to severe.

Step 3: Appoint monitors

Identify individuals at your business who will keep an eye on and manage risks. The risk monitor might be you, a partner, or an employee. Decide how risks should be reported and handled. When you have procedures for risk management, issues can be taken care of smoothly.

Step 4: Determine controls

After understanding potential risks, figure out controls you can use to reduce them. Look at patterns over time to predict your income cycle. And, assess the impact risks have on your business. Look at the significance of a risk as well as its likelihood of occurring at your business.

Step 5: Review periodically

Your business risk assessment is not a one-time commitment. Review risk management processes annually to see how you handle risks. Also, look out for new risks that might not have been relevant in the previous assessment.

Use a risk ratio to gauge risk

A risk ratio shows the relationship between your business’s debts and equity. Business debt creates risk. By comparing debt, or leverage, to equity, you get a better understanding of your business’s level of risk. This can help you set more targeted business debt management goals.

Debt-to-equity ratio

There are different kinds of financial leverage ratios. One common leverage ratio formula is the debt-to-equity ratio . For this ratio, divide your total debt by your total equity. Business equity is equal to your assets minus liabilities and shows your ownership in the business.

Debt-to-Equity Ratio = Total Debt / Total Equity

For example, you have $30,000 in debt and $15,000 in equity.

$30,000 / $15,000 = 2 times or 200%

This means for every dollar you have, you owe two dollars to creditors.

By finding the debt-to-equity ratio, you can see how much capital comes from debt. The more debt you have compared to equity, the bigger your risk level.

Purpose of risk assessments

Risk assessments are an important part of running your business. You can use your business risk assessment for making decisions and financing your business .

A simple risk analysis will help you avoid hazards that could damage your finances. The assessment informs you about the steps you need to take to protect your business. You can see what situations you need to address and avoid.

Beyond internal use, a financial risk assessment can help you prepare to talk with lenders. These individuals want to know your business’s level of risk before giving you money. They look at the likelihood of your business growing and how likely you are to pay back the loan.

Need help keeping track of your business debts, income, and expenses? Patriot’s online accounting software is easy to use and made for the non-accountant. We offer free, USA-based support. Try it for free today.

This article is updated from its original publication date of May 9, 2017.

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What is business risk?

You know about death and taxes. What about risk? Yes, risk is just as much a part of life as the other two inevitabilities. This became all the more apparent during COVID-19, as each of us had to assess and reassess our personal risk calculations as each new wave of the pandemic— and pandemic-related disruptions —washed over us. It’s the same in business: executives and organizations have different comfort levels with risk and ways to prepare against it.

Where does business risk come from? To start with, external factors can wreak havoc on an organization’s best-laid plans. These can include things like inflation , supply chain  disruptions, geopolitical upheavals , unpredictable force majeure events like a global pandemic or climate disaster, competitors, reputational  issues, or even cyberattacks .

But sometimes, the call is coming from inside the house. Companies can be imperiled by their own executives’ decisions or by leaks of privileged information, but most damaging of all, perhaps, is the risk of missed opportunities. We’ve seen it often: when companies choose not to adopt disruptive innovation, they risk losing out to more nimble competitors.

The modern era is rife with increasingly frequent sociopolitical, economic, and climate-related shocks. In 2019 alone, for example, 40 weather disasters caused damages exceeding $1 billion each . To stay competitive, organizations should develop dynamic approaches to risk and resilience. That means predicting new threats, perceiving changes in existing threats, and developing comprehensive response plans. There’s no magic formula that can guarantee safe passage through a crisis. But in situations of threat, sometimes only a robust risk-management plan can protect an organization from interruptions to critical business processes. For more on how to assess and prepare for the inevitability of risk, read on.

Learn more about McKinsey’s Risk and Resilience  Practice.

What is risk control?

Risk controls are measures taken to identify, manage, and eliminate threats. Companies can create these controls through a range of risk management strategies and exercises. Once a risk is identified and analyzed, risk controls can be designed to reduce the potential consequences. Eliminating a risk—always the preferable solution—is one method of risk control. Loss prevention and reduction are other risk controls that accept the risk but seek to minimize the potential loss (insurance is one method of loss prevention). A final method of risk control is duplication (also called redundancy). Backup servers or generators are a common example of duplication, ensuring that if a power outage occurs no data or productivity is lost.

But in order to develop appropriate risk controls, an organization should first understand the potential threats.

What are the three components to a robust risk management strategy?

A dynamic risk management plan can be broken down into three components : detecting potential new risks and weaknesses in existing risk controls, determining the organization’s appetite for risk taking, and deciding on the appropriate risk management approach. Here’s more information about each step and how to undertake them.

1. Detecting risks and controlling weaknesses

A static approach to risk is not an option, since an organization can be caught unprepared when an unlikely event, like a pandemic, strikes. So it pays to always be proactive. To keep pace with changing environments, companies should answer the following three questions for each of the risks that are relevant to their business.

• How will a risk play out over time? Risks can be slow moving or fast moving. They can be cyclical or permanent. Companies should analyze how known risks are likely to play out and reevaluate them on a regular basis.
• Are we prepared to respond to systemic risks? Increasingly, risks have longer-term reputational or regulatory consequences, with broad implications for an industry, the economy, or society at large. A risk management strategy should incorporate all risks, including systemic ones.
• What new risks lurk in the future? Organizations should develop new methods of identifying future risks. Traditional approaches that rely on reviews and assessments of historical realities are no longer sufficient.

2. Assessing risk appetite

How can companies develop a systematic way of deciding which risks to accept and which to avoid? Companies should set appetites for risk that align with their own values, strategies, capabilities, and competitive environments—as well as those of society as a whole. To that end, here are three questions companies should consider.

• How much risk should we take on? Companies should reevaluate their risk profiles frequently according to shifting customer behaviors, digital capabilities, competitive landscapes, and global trends.
• Are there any risks we should avoid entirely? Some risks are clear: companies should not tolerate criminal activity or sexual harassment. Others are murkier. How companies respond to risks like economic turmoil and climate change depend on their particular business, industry, and levels of risk tolerance.
• Does our risk appetite adequately reflect the effectiveness of our controls? Companies are typically more comfortable taking risks for which they have strong controls in place. But the increased threat of severe risks challenges traditional assumptions about risk control effectiveness. For instance, many businesses have relied on automation to increase speed and reduce manual error. But increased data breaches and privacy concerns can increase the risk of large-scale failures. Organizations, therefore, should evolve their risk profiles accordingly.

3. Deciding on a risk management approach

Finally, organizations should decide how they will respond when a new risk is identified. This decision-making  process should be flexible and fast, actively engaging leaders from across the organization and honestly assessing what has and hasn’t worked in past scenarios. Here are three questions organizations should be able to answer.

• How should we mitigate the risks we are taking? Ultimately, people need to make these decisions and assess how their controls are working. But automated control systems should buttress human efforts. Controls guided, for example, by advanced analytics can help guard against quantifiable risks and minimize false positives.
• How would we respond if a risk event or control breakdown happens? If (or more likely, when) a threat occurs, companies should be able to switch to crisis management mode quickly, guided by an established playbook. Companies with well-rehearsed crisis management capabilities weather shocks better, as we saw with the COVID-19 pandemic.
• How can we build true resilience? Resilient companies not only better withstand threats—they emerge stronger. The most resilient firms can turn fallout from crises into a competitive advantage. True resilience stems from a diversity of skills and experience, innovation, creative problem solving, and the basic psychological safety that enables peak performance.

Change is constant. Just because a risk control plan made sense last year doesn’t mean it will next year. In addition to the above points, a good risk management strategy involves not only developing plans based on potential risk scenarios but also evaluating those plans on a regular basis.

Learn more about McKinsey’s  Risk and Resilience  Practice.

What are five actions organizations can take to build dynamic risk management?

In the past, some organizations have viewed risk management as a dull, dreary topic, uninteresting for the executive looking to create competitive advantage. But when the risk is particularly severe or sudden, a good risk strategy is about more than competitiveness—it can mean survival. Here are five actions leaders can take to establish risk management capabilities .

• Reset the aspiration for risk management.  This requires clear objectives and clarity on risk levels and appetite. Risk managers should establish dialogues with business leaders to understand how people across the business think about risk, and share possible strategies to nurture informed risk-versus-return decision making—as well as the capabilities available for implementation.
• Establish agile  risk management practices.  As the risk environment becomes more unpredictable, the need for agile risk management grows. In practice, that means putting in place cross-functional teams empowered to make quick decisions about innovating and managing risk.
• Harness the power of data and analytics.  The tools of the digital revolution  can help companies improve risk management. Data streams from traditional and nontraditional sources can broaden and deepen companies’ understandings of risk, and algorithms can boost error detection and drive more accurate predictions.
• Develop risk talent for the future.  Risk managers who are equipped to meet the challenges of the future will need new capabilities and expanded domain knowledge in model risk management , data, analytics, and technology. This will help support a true understanding of the changing risk landscape , which risk leaders can use to effectively counsel their organizations.
• Fortify risk culture.  Risk culture includes the mindsets and behavioral norms that determine an organization’s relationship with risk. A good risk culture allows an organization to respond quickly when threats emerge.

How do scenarios help business leaders understand uncertainty?

Done properly, scenario planning prompts business leaders to convert abstract hypotheses about uncertainties into narratives about realistic visions of the future. Good scenario planning can help decision makers experience new realities  in ways that are intellectual and sensory, as well as rational and emotional. Scenarios have four main features  that can help organizations navigate uncertain times.

• Scenarios expand your thinking.  By developing a range of possible outcomes, each backed with a sequence of events that could lead to them, it’s possible to broaden our thinking. This helps us become ready for the range of possibilities the future might hold—and accept the possibility that change might come more quickly than we expect.
• Scenarios uncover inevitable or likely futures.  A broad scenario-building effort can also point to powerful drivers of change, which can help to predict potential outcomes. In other words, by illuminating critical events from the past, scenario building can point to outcomes that are very likely to happen in the future.
• Scenarios protect against groupthink.  In some large corporations, employees can feel unsafe offering contrarian points of view for fear that they’ll be penalized by management. Scenarios can help companies break out of this trap by providing a “safe haven” for opinions that differ from those of senior leadership and that may run counter to established strategy.
• Scenarios allow people to challenge conventional wisdom.  In large corporations in particular, there’s frequently a strong bias toward the status quo. Scenarios are a nonthreatening way to lay out alternative futures in which assumptions underpinning today’s strategy can be challenged.

Learn more about McKinsey’s Strategy & Corporate Finance  Practice.

What’s the latest thinking on risk for financial institutions?

In late 2021, McKinsey conducted survey-based research with more than 30 chief risk officers (CROs), asking about the current banking environment, risk management practices, and priorities for the future.

According to CROs, banks in the current environment are especially exposed to accelerating market dynamics, climate change, and cybercrime . Sixty-seven percent of CROs surveyed cited the pandemic as having significant impact on employees and in the area of nonfinancial risk. Most believed that these effects would diminish in three years’ time.

Introducing McKinsey Explainers : Direct answers to complex questions

Climate change, on the other hand, is expected to become a larger issue over time. Nearly all respondents cited climate regulation as one of the five most important forces in the financial industry in the coming three years. And 75 percent were concerned about climate-related transition risk: financial and other risks arising from the transformation away from carbon-based energy systems.

And finally, cybercrime was assessed as one of the top risks by most executives, both now and in the future.

Learn more about the risk priorities of banking CROs here .

What is cyber risk?

Cyber risk is a form of business risk. More specifically, it’s the potential for business losses of all kinds  in the digital domain—financial, reputational, operational, productivity related, and regulatory related. While cyber risk originates from threats in the digital realm, it can also cause losses in the physical world, such as damage to operational equipment.

Cyber risk is not the same as a cyberthreat. Cyberthreats are the particular dangers that create the potential for cyber risk. These include privilege escalation (the exploitation of a flaw in a system for the purpose of gaining unauthorized access to resources), vulnerability exploitation (an attack that uses detected vulnerabilities to exploit the host system), or phishing. The risk impact of cyberthreats includes loss of confidentiality, integrity, and availability of digital assets, as well as fraud, financial crime, data loss, or loss of system availability.

In the past, organizations have relied on maturity-based cybersecurity approaches to manage cyber risk. These approaches focus on achieving a particular level of cybersecurity maturity by building capabilities, like establishing a security operations center or implementing multifactor authentication across the organization. A maturity-based approach can still be helpful in some situations, such as for brand-new organizations. But for most institutions, a maturity-based approach can turn into an unmanageably large project, demanding that all aspects of an organization be monitored and analyzed. The reality is that, since some applications are more vulnerable than others, organizations would do better to measure and manage only their most critical vulnerabilities.

What is a risk-based cybersecurity approach?

A risk-based approach is a distinct evolution from a maturity-based approach. For one thing, a risk-based approach identifies risk reduction as the primary goal. This means an organization prioritizes investment based on a cybersecurity program’s effectiveness in reducing risk. Also, a risk-based approach breaks down risk-reduction targets into precise implementation programs with clear alignment all the way up and down an organization. Rather than building controls everywhere, a company can focus on building controls for the worst vulnerabilities.

Here are eight actions that comprise a best practice for developing  a risk-based cybersecurity approach:

• fully embed cybersecurity in the enterprise-risk-management framework
• define the sources of enterprise value across teams, processes, and technologies
• understand the organization’s enterprise-wide vulnerabilities—among people, processes, and technology—internally and for third parties
• understand the relevant “threat actors,” their capabilities, and their intent
• link the controls in “run” activities and “change” programs to the vulnerabilities that they address and determine what new efforts are needed
• map the enterprise risks from the enterprise-risk-management framework, accounting for the threat actors and their capabilities, the enterprise vulnerabilities they seek to exploit, and the security controls of the organization’s cybersecurity run activities and change program
• plot risks against the enterprise-risk appetite; report on how cyber efforts have reduced enterprise risk
• monitor risks and cyber efforts against risk appetite, key cyber risk indicators, and key performance indicators

How can leaders make the right investments in risk management?

Ignoring high-consequence, low-likelihood risks can be catastrophic to an organization—but preparing for everything is too costly. In the case of the COVID-19 crisis, the danger of a global pandemic on this scale was foreseeable, if unexpected. Nevertheless, the vast majority of companies were unprepared: among billion-dollar companies in the United States, more than 50 filed for bankruptcy in 2020.

McKinsey has described the decisions to act on these high-consequence, low-likelihood risks as “ big bets .” The number of these risks is far too large for decision makers to make big bets on all of them. To narrow the list down, the first thing a company can do is to determine which risks could hurt the business versus the risks that could destroy the company. Decision makers should prioritize the potential threats that would cause an existential crisis  for their organization.

To identify these risks, McKinsey recommends using a two-by-two risk grid, situating the potential impact of an event on the whole company against the level of certainty about the impact. This way, risks can be measured against each other, rather than on an absolute scale.

Organizations sometimes survive existential crises. But it can’t be ignored that crises—and missed opportunities—can cause organizations to fail. By measuring the impact of high-impact, low-likelihood risks on core business, leaders can identify and mitigate risks that could imperil the company. What’s more, investing in protecting their value propositions can improve an organization’s overall resilience.

Articles referenced:

• “ Seizing the momentum to build resilience for a future of sustainable inclusive growth ,” February 23, 2023, Børge Brende and Bob Sternfels
• “ Data and analytics innovations to address emerging challenges in credit portfolio management ,” December 23, 2022, Abhishek Anand , Arvind Govindarajan , Luis Nario  and Kirtiman Pathak
• “ Risk and resilience priorities, as told by chief risk officers ,” December 8, 2022, Marc Chiapolino , Filippo Mazzetto, Thomas Poppensieker , Cécile Prinsen, and Dan Williams
• “ What matters most? Six priorities for CEOs in turbulent times ,” November 17, 2022, Homayoun Hatami  and Liz Hilton Segel
• “ Model risk management 2.0 evolves to address continued uncertainty of risk-related events ,” March 9, 2022, Pankaj Kumar, Marie-Paule Laurent, Christophe Rougeaux, and Maribel Tejada
• “ The disaster you could have stopped: Preparing for extraordinary risks ,” December 15, 2020, Fritz Nauck , Ophelia Usher, and Leigh Weiss
• “ Meeting the future: Dynamic risk management for uncertain times ,” November 17, 2020, Ritesh Jain, Fritz Nauck , Thomas Poppensieker , and Olivia White
• “ Risk, resilience, and rebalancing in global value chains ,” August 6, 2020, Susan Lund, James Manyika , Jonathan Woetzel , Edward Barriball , Mekala Krishnan , Knut Alicke , Michael Birshan , Katy George , Sven Smit , Daniel Swan , and Kyle Hutzler
• “ The risk-based approach to cybersecurity ,” October 8, 2019, Jim Boehm , Nick Curcio, Peter Merrath, Lucy Shenton, and Tobias Stähle
• “ Value and resilience through better risk management ,” October 1, 2018, Daniela Gius, Jean-Christophe Mieszala , Ernestos Panayiotou, and Thomas Poppensieker

Want to know more about business risk?

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Uncovering Hidden Risks: A Comprehensive Guide to Business Plan Risk Analysis

A modern business plan that will lead your business on the road to success must have another critical element. That element is a part where you will need to cover possible risks related to your small business. So, you need to focus on  managing risk  and use  risk management processes  if you want to succeed as an entrepreneur.

How can you manage risks?

You can always plan and  predict  future things in a certain way that will happen, but your impact is not always in your hands. There are many  external factors  when it comes to the business world. They will always influence the realization of your plans. Not only the realization but also the results you will achieve in implementing the specific plan. Because of that, you need to look at these factors through the prism of the risk if you want to implement an appropriate management process while implementing your business plan.

By conducting a thorough risk analysis, you can manage risks by identifying potential threats and uncertainties that could impact your business. From market fluctuations and regulatory changes to competitive pressures and technological disruptions, no risk will go unnoticed. With these insights, you can develop contingency plans and implement risk mitigation strategies to safeguard your business’s interests.

This guide will provide practical tips and real-life examples to illustrate the importance of proper risk analysis. Whether you’re a startup founder preparing a business plan or a seasoned entrepreneur looking to reassess your risk management approach, this guide will equip you with the knowledge and tools to navigate the complex landscape of business risks.

Why is Risk Analysis Important for Business Planning?

Risk analysis is essential to business planning as it allows you to proactively identify and assess potential risks that could impact your business objectives. When you conduct a comprehensive risk analysis, you can gain a deeper understanding of the threats your business may face and can take proactive measures to mitigate them.

One of the key benefits of risk analysis is that it enables you to prioritize risks based on their potential impact and likelihood of occurrence . This helps you allocate resources effectively and develop contingency plans that address the most critical risks.

Additionally, risk analysis allows you to identify opportunities that may arise from certain risks , enabling you to capitalize on them and gain a competitive advantage.

It is important to adopt a systematic approach to effectively analyze risks in your business plan. This involves identifying risks across various market, operational, financial, and legal areas. By considering risks from multiple perspectives, you can develop a holistic understanding of your business’s potential challenges.

What is a Risk for Your Small Business?

In dictionaries, the risk is usually defined as:

The possibility of dangerous or bad consequences becomes true .

When it comes to businesses,  entrepreneurs,  or in this case, the business planning process, it is possible that some aspects of the business plan will not be implemented as planned. Such a situation could have dangerous or harmful consequences for your small business.

It is simple. If you don’t implement something you have in your business plan, there will be some negative consequences for your small business.

Here is how you can  write the business plan in 30 steps .

Types of Risks in Business Planning

When conducting a business risk assessment for your business plan, it is essential to consider various types of risks that could impact your venture. Here are some common types of risks to be aware of:

1. Market risks

These risks arise from fluctuations in the market, including changes in consumer preferences, economic conditions, and industry trends. Market risks can impact your business’s demand, pricing, and market share.

2. Operational risk

Operational risk is associated with internal processes, systems, and human resources. These risks include equipment failure, supply chain disruptions, employee errors, and regulatory compliance issues.

3. Financial risks

Financial risks pertain to managing financial resources and include factors such as cash flow volatility, debt levels, currency fluctuations, and interest rate changes.

4. Legal and regulatory risks

Legal and regulatory risks arise from changes in laws, regulations, and compliance requirements. Failure to comply with legal and regulatory obligations can result in penalties, lawsuits, and reputational damage.

5. Technological risks

Technological risks arise from rapid technological advancements and the potential disruptions they can cause your business. These risks include cybersecurity threats, data breaches, and outdated technology infrastructure.

Basic Characteristics of Risk

Before you start with the development of your small  business risk  management process, you will need to know and consider the essential characteristics of the possible risk for your company.

What are the basic characteristics of a possible risk?

The risk for your company is partially unknown.

Your  entrepreneurial work  will be too easy if it is easy to predict possible risks for your company. The biggest problem is that the risk is partially unknown. Here we are talking about the future, and we want to prepare for that future. So, the risk is partially unknown because it will possibly appear in the future, not now.

The risk to your business will change over time.

Because your businesses operate in a highly dynamic environment, you cannot expect it to be something like the default. You cannot expect the risk to always exist in the same shape, form, or consequence for your company.

You can predict the risk.

It is something that, if we want, we can predict through a  systematic process . You can easily predict the risk if you install an appropriate risk management process in your small business.

The risk can and should be managed.

You can always focus your resources on eliminating or reducing risk in the areas expected to appear.

Risk Management Process You Should Implement

The risk management process cannot be seen as static in your company. Instead of that, it must be seen as an interactive process in which information will continuously be updated and analyzed. You and your small business members will act on them, and you will review all risk elements in a specified period.

Adopting a systematic approach to identifying and assessing risks in your business plan is crucial. Here are some steps to consider:

1. Risk Identification

First, you must identify risk areas . Ask and respond to the following questions:

• What are my company’s most significant risks?
• What are the risk types I will need to follow?

In business, identifying risk areas is the process of pinpointing potential threats or hazards that could negatively impact your business’s ability to conduct operations, achieve business objectives, or fulfill strategic goals.

Just as meteorologists use data to predict potential storms and help us prepare, you can use risk identification to foresee possible challenges and create plans to deal with them.

Risk can arise from various sources, such as financial uncertainty, legal liabilities, strategic management errors, accidents, natural disasters, and even pandemic situations. Natural disasters can not be predicted or avoided, but you can prepare if they appear.

For example, a retail business might identify risks like fluctuating market trends, supply chain disruptions, cybersecurity threats, or changes in consumer behavior. As you can see, the main risk areas are related to types of risk: market, financial, operational, legal and regulatory, and technological risks.

You can also use business model elements to start with something concrete:

• Value proposition,
• Customers ,
• Customers relationships ,
• Distribution channels,
• Key resources and
• Key partners.

It is not necessarily that there will be risk in all areas and that the risk will be with the same intensity for all areas. So, based on your business environment, the industry in which your business operates, and the business model, you will need to determine in which of these areas there is a possible risk.

Also, you must stay informed about external factors impacting your business, such as industry trends, economic conditions, and regulatory changes. This will help you identify emerging risks and adapt your risk management strategies accordingly.

The idea for this step is to create a table where you will have identified potential risks in each important area of your business.

2. Risk Profiling

Conduct a detailed analysis of each identified risk, including its potential impact on your business objectives and the likelihood of occurrence. This will help you develop a comprehensive understanding of the risks you face.

Qualitative Risk Analysis

The qualitative risk analysis process involves assessing and prioritizing risks based on ranking or scoring systems to classify risks into low, medium, or high categories. For this analysis, you can use customer surveys or interviews.

Qualitative risk analysis is quick, straightforward, and doesn’t require specialized statistical knowledge to conduct a business risk assessment. The main negative side is its subjectivity, as it relies heavily on thinking about something or expert judgment.

This method is best suited for initial risk assessments or when there is insufficient quantitative analysis data .

For example, if we consider the previously identified risk of a sudden shift in consumer preferences, a qualitative analysis might rate its likelihood as 7 out of 10 and its impact as 8 out of 10, placing it in the high-priority quadrant of our risk matrix. But, qualitative analysis can also use surveys and interviews where you can ask open questions and use the qualitative research process to make this scaling. This is much better because you want to lower the subjectivism level when doing business risk assessment.

Quantitative Risk Analysis

On the other side, the quantitative risk analysis method involves numerical and statistical techniques to estimate the probability and potential impact of risks. It provides more objective and detailed information about risks.

Quantitative risk analysis can provide specific, data-driven insights, making it easier to make informed decisions and allocate resources effectively. The negative side of this method is that it can be time-consuming, complex, and requires sufficient data.

You can use this approachfor more complex projects or when you need precise data to inform decisions, especially after a qualitative analysis has identified high-priority risks.

For example , for the risk of currency exchange rate fluctuations, a quantitative analysis might involve analyzing historical exchange rate data to calculate the probability of a significant fluctuation and then using your financial data to estimate the potential monetary impact.

Both methods play crucial roles in effectively managing risks. Qualitative risk analysis helps to identify and prioritize risks quickly, while quantitative analysis provides detailed insights for informed decision-making.

3. Business Risk Assessment Matrix

Once you have identified potential risks and analyzed their likelihood and potential impact, you can create a business risk assessment matrix to evaluate each risk’s likelihood and impact. This matrix will help you prioritize risks and allocate resources accordingly.

A business risk assessment matrix, sometimes called a probability and impact matrix, is a tool you can use to assess and prioritize different types of risks based on their likelihood (probability) and potential damage (impact). Here’s a step-by-step process to create one:

• Step 1: Begin by listing out your risks . For our example, let’s consider four of the risks we identified earlier: a sudden shift in consumer preferences (Market Risk), currency exchange rate fluctuations (Financial Risk), an increase in the minimum wage (Legal), and cybersecurity threats (Technological Risk).
• Step 2: Determine the likelihood of each risk occurring . In the process of risk profiling, we’ve determined that a sudden shift in consumer preferences is highly likely, currency exchange rate fluctuations are moderately likely, an increase in the minimum wage, and cybersecurity threats are less likely but still possible.
• Step 3: Assess the potential impact of each risk on your business if it were to occur . In our example, we might find that a sudden shift in consumer preferences could have a high impact, currency exchange rate fluctuations a moderate impact, an increase in minimum wage minor impact, and cybersecurity threats a high impact.
• Step 4: Plot these risks on your risk matrix . The vertical axis represents the likelihood (high to low), and the horizontal axis represents the consequences (high to low).

By visualizing these risks in a risk assessment matrix format, you can more easily identify which risks require immediate attention and which ones might need long-term strategies.

4. Develop Risk Indicators for Each Risk You Have Identified

The question is, how will you measure the business risks for your company?

Risk indicators are metrics used to measure and predict potential threats to your business. Simply, a risk indicator is a measure that should tell you whether the risk appears or not in a particular area you have defined previously. They act like a business’s early warning system. When these indicators change, it’s a signal that the risk level may be increasing.

For example, for distribution channels, an indicator can be a delay in delivery for a minimum of three days. This indicator will tell you something is wrong with that channel, and you must respond appropriately.

Now, let’s consider some risk indicators for the risks we have already identified and analyzed:

If you conduct all the steps until now, you can have a similar table with risk indicators in your business plan. You should monitor these indicators regularly, and if you notice a significant change, such as a drop in sales or an increase in attempted breaches, it’s time to investigate and take some action steps. This might involve updating your product line, hedging against currency risk, budgeting for higher wages, or improving your cybersecurity measures.

Remember, risk indicators can’t predict the future with certainty. But they can give you valuable insights that can help you prepare for potential threats.

5. Define Possible Action Steps

The question is, what can you do regarding the risk if the risk indicator tells you that there is a potential risk?

Once the risk has appeared and is located, it is time to take concrete action steps. The goals of this step are not only to reduce or eliminate the impact of the risk for your company but also to prevent them in the future and reduce or eliminate their influence on the business operations or the execution of your business plan.

For example, for distribution channels with delivery delayed more than three days, possible activities can be the following:

• Apologizing to the customers for the delay,
• Determining the reasons for the delay,
• Analysis of the reasons,
• Removing the reasons,
• Consideration of alternative distribution channels, etc.

In this part of the business plan for each risk area and indicator, try to standardize all possible actions. You can not expect that they will be final. But, you can cover some basic guidelines that must be implemented if the risk appears. Here is an example of how this part will look in your business plan related to risks we have already identified through the risk assessment process.

6. Monitoring

Because this risk management process is dynamic , you must apply the monitoring process. In such a way, you can ensure the elimination of a specific kind of risk in the future, and you will allocate your resources to new possible risks.

After implementing the actions, you need to ask yourself the following questions:

• Are the actions taken regarding the risk the proper measures?
• Can you improve something regarding the risk management process? Is there a need for new risk indicators?

Techniques and Tools for Business Plan Risk Assessment

Various risk analysis methods, techniques, and tools are available to conduct an effective risk analysis for your business plan. Here are some commonly used ones:

1. SWOT analysis

A SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis can help you identify internal strengths and weaknesses and external opportunities and threats. This analysis provides valuable insights into possible business risks and opportunities.

2. PESTEL analysis

A PESTEL (Political, Economic, Sociocultural, Technological, Environmental, Legal) analysis assesses the external factors that could impact your business. This analysis will help you identify risks and opportunities arising from these factors.

3. Scenario analysis

Consider different scenarios that could impact your business, such as best-case, worst-case, and most likely scenarios, as a part of your risk assessment process. You can anticipate potential risks and develop appropriate response strategies by analyzing these scenarios.

4. Monte Carlo simulation

Monte Carlo simulation uses random sampling and probability distributions to model various scenarios and assess their potential impact on your business. This technique provides you with a more accurate understanding of risk exposure.

5. Risk register

A risk register is a risk analysis tool that helps you record and track identified risks and their relevant details, such as impact, likelihood, mitigation strategies, and responsible parties. This tool ensures that risks are appropriately managed and monitored.

6. Business Impact Analysis (BIA)

Business impact analysis helps you understand the potential effects of various disruptions on your business operations and objectives. It’s about identifying what could go wrong and understanding how it could impact your bottom line. So, you can conduct business impact analysis as a part of your risk assessment inside your business plan.

7. Failure Mode and Effects Analysis (FMEA)

Using FMEA in your risk assessment process, you can proactively address potential problems, ensuring your business operations run as smoothly as you planned. It’s all about preparing for the worst while striving for the best.

8. Risk-Benefit Analysis (RBA)

The risk-benefit analysis allows you to make informed decisions, balancing the potential for gain against the potential for loss. It helps you choose the best path, even when the way forward isn’t entirely clear. This tool is a systematic approach to understanding the specific business risk and benefits associated with a decision, process, or project.

9. Cost-Benefit Analysis

By conducting a cost-benefit analysis as a part of your risk assessments, you can make data-driven decisions that consider both the possible risks (costs) and rewards (benefits). This approach provides a clear picture of the potential return on investment, enabling more effective and confident decision-making.

These techniques and tools allow you to conduct a comprehensive risk analysis for your business plan.

Mitigating and Managing Risks in a Business Plan

Identifying risks in your business plan is only the first step. To ensure the success of your venture, it is crucial to develop effective risk mitigation and management strategies. Here are some critical steps to consider:

• Risk avoidance : Some risks may be too high to justify taking. In such cases, consider avoiding these risks altogether by adjusting your business plan or exploring alternative strategies.
• Risk transfer : Transferring risks to third parties, such as insurance companies or outsourcing partners, can help mitigate their impact on your business. Evaluate opportunities for risk transfer and consider appropriate insurance coverage.
• Risk reduction : Implement measures to reduce the likelihood and impact of identified risks. This may involve improving internal processes, implementing safety protocols, or diversifying your supplier base .
• Risk acceptance : Some risks may be unavoidable or negatively impact your business. In such cases, accepting the risks and developing contingency plans can help minimize their impact.

In conclusion, a comprehensive risk analysis is essential for identifying, assessing, and managing different types of risk that could impact your success.

Conducting a thorough risk analysis can safeguard your business’s interests, capitalize on opportunities, and increase your chances of long-term success.

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How a Risk Assessment Process Can Benefit Your Company

Without risk, there is no innovation. It is good for organizations to have a healthy risk appetite, but it should never be at the compromise of safety and mismanagement.

Imagine if OceanGate had conducted a thorough risk assessment prior to Titan ’s expedition to explore the Titanic wreckage. Had there been a risk assessment process in place, they would not have overlooked the design flaws of the submersible and the fact that it had not been adequately tested prior to launching for commercial operations; and the catastrophe that followed could have been averted. This incident explains why having a risk assessment process is extremely important.

In this blog post, we’ll unravel the essence of risk assessment, explore the difference between risks and hazards, explore crucial steps in the risk assessment process, and uncover the benefits of having an effective risk management plan.

What is the Risk Assessment Process?

Risk assessment process template, the difference between a risk and hazard, identification of hazards, risk analysis, risk evaluation, risk treatment, monitoring and review, benefits of having an aligned risk management process, real-world example, common mistakes in risk assessment process, wrapping up.

The risk assessment process is the strategy businesses use to address potential issues. It’s all about understanding what could go wrong and how it might affect the goals of the company, in a systematic way. Picture it as a detective mission to identify hazards — whether they’re money-related, day-to-day operations stuff, big-picture plans, or following the rules. By looking at how likely these hazards are and how bad they could get, businesses get a clear view of the risks they’re up against.

Risk assessment isn’t a one-time thing; it’s an ongoing process that needs regular check-ins and adjustments. Think of it as a trusty guide that helps businesses stay away from trouble and move confidently into a future that’s more secure and ready for anything.

Before delving further, let’s dispel a common misconception – the interchangeable use of ‘risk’ and ‘hazard.’ A hazard is a potential source of harm or adverse health effect, like a chemical substance or a slippery floor. On the flip side, risk is the likelihood and severity of the harm occurring from a hazard. While a hazard may exist without risk, risk cannot materialize without a hazard. Think of hazards as potential threats and risks as the probability of those threats turning into actual harm.

Risk assessment starts with identifying, analyzing, and evaluating potential risks to figure out how likely and how serious a harm would be if it came true. This includes physical, chemical, biological, and even psychological hazards. During this step, you can use the risk probability and impact matrix.

Dive into the details. With the risk matrix, you can visually organize the risks into different categories based on their likelihood and severity. This makes it easier to identify which risks need to be addressed and how urgently.

Determine whether the risks identified are acceptable or if additional control measures are necessary. Consider the context and specific circumstances surrounding each risk. The risk register template will help you list out these circumstances and identify the right course of action.

Implement strategies to control or mitigate risks. This could involve modifying processes, introducing safety measures, or even transferring the risk through insurance. It is important to identify potential risks and develop strategies to reduce them. These strategies should be tailored to the specific situation and should be regularly reviewed and updated to ensure that the risks are managed effectively.

The risk assessment process is not a one-time event. Regularly review and update your risk assessment, especially when there are significant changes in the organization, processes, or external environment. This is because risk assessment is a continuous process, and the risks and threats associated with an organization can change quickly. It is important to regularly review and analyze your risk assessment to ensure that it is still valid and up-to-date.

Proactive Decision-Making: Armed with insights from the risk assessment process, you can make informed decisions that anticipate and mitigate potential issues.

Enhanced Resilience: A robust risk management plan not only shields you from uncertainties but also enhances your ability to bounce back when faced with unexpected challenges.

Improved Resource Allocation: Identifying and prioritizing risks allows you to allocate resources efficiently, focusing on areas that pose the greatest threat to your objectives.

Regulatory Compliance: Many industries have stringent regulatory requirements. A well-defined risk management plan ensures compliance, avoiding legal pitfalls.

In the world of project management, a failure to identify and mitigate risks led to the infamous Challenger disaster in 1986. The overlooked risk of O-ring failure in cold temperatures resulted in the tragic loss of seven lives and highlighted the critical importance of thorough risk assessment.

Ignoring Low Probability-High Impact Risks: Some risks might seem unlikely but could have severe consequences. Ignoring these ‘black swan’ events can lead to catastrophic outcomes.

Lack of Stakeholder Involvement: The risk assessment process should be a collaborative effort. Failing to involve key stakeholders may result in overlooking crucial insights and perspectives.

Static Risk Assessments: Your business is dynamic, and so are its risks. A static risk assessment that doesn’t adapt to changes in the internal or external environment is a recipe for disaster.

The business environment is volatile, which is why your business needs a risk assessment process to mitigate potential risks and navigate through challenges successfully. Differentiating between hazards and risks, understanding the steps in the process, and crafting a robust risk management plan are all essential elements of ensuring a secure journey.

Ready to fortify your business against uncertainties? Start by implementing a comprehensive risk assessment process and crafting a robust risk management plan. Your secure future awaits!

In the ever-changing landscape of business, the ability to navigate risks is not just a skill; it’s a survival instinct. Equip yourself with the knowledge and tools to steer through the storm, and let the journey be as rewarding as the destination.

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

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Hansani is a content specialist at Creately. She loves reading and writing about tech innovations. She enjoys writing poetry, travelling and photography.

6 Critical Risks in a Business Plan

Business plan risks analysis, problem, challenging factors and mitigation strategies.

What is a major example of critical risk in a business plan? Every business is prone to facing certain business risks, which might appear very critical in the real world.

As a business person, you must be able to spend sufficient time in drafting your business plan so that it is capable of addressing the critical risks and assumptions that your business might face.

You should be able to envision and determine, in your business plan, critical risks in a restaurant business plan that might pose a threat to the overall success of your business. When you do not pay enough attention to these risks, it could cause your readers – most important of which are potential investors and bankers – to negatively evaluate your business plan.

Below are some critical business risks and contingencies in a business plan that you must ensure to properly handle before they pose a threat to the success of your business.

Conducting Business Plan Risk Assessment – Business Plan Risk Factors

• Risk of Overestimated Figures

The number one critical business risk that might land your business into problem by getting too much negative attention has to do with figures that have been overestimated. We are talking about high sales profit that seem too optimistic; salaries that appear to be too high or outrageous for a business of its age; and profitability.  These three, if you overestimate the figures, will inadvertently pose as a serious business risk.

For salaries, it will be wise for you to go for the minimum as a startup business, together with any additional incomes that come in the form of profits.

For sales and profits, it will be wise of you to always give figures that appear to be more likely, not figures that seem to match your optimism. Your business’ profitability largely depends on your ability to meet sales projections, and your ability to be able to operate in the confines of your costs. • Risk of Indecisive Conversion Rates

Conversion rate (also hit rate) has to do with the percentage of people, out of the total number of people you approached, that purchased or patronized your product or services. Conversion rate could be best tested through test marketing or pre-selling.

When you test market, it simply means you offer the sales of your product within a particular limited area, for a particular period of time. Usually, you would offer incentives to buyers to encourage them help you outline your actual target customers for your business.

When you pre-sell, you are making introduction of your products or services to prospective customers, and even accepting orders for deliveries.

Your goal is to accurately know the conversion rate such that a reader may be able to take your projected market size, apply the conversion rate, and be able to deduce what the total sales estimate might be. • Risk of Ignored Competition

Here is another critical business risk that many entrepreneurs fail to curtail. As an entrepreneur, you are the master and captain of your game. You are to take charge and seize your market. How do you do that? You are to know every competitor in the industry of your business. Yes, it is an obligation you can never overlook.

Many entrepreneurs feel they know their competitors very well, when in actually reality, they have no real clue as to who their major competitors are. You must ensure you have adequate knowledge of your immediate competitors, as well as substitutes and potential or latent competitors.

If you want to prove your long-term vision for your business, you must always keep abreast with the latest development regarding your competitors. You should even envision businesses that, in later years, might stand as competitors.

• Financial Risk

Most businesses today fold up as a result of financial difficulties. Lack of adequate financial resources is a very critical business risk that might make a business to close.

In most cases, the business runs out of enough money; many customers are taking too long to pay up; unforeseen expenses and too much miscellaneous; accidents and costly financial mistakes could pose a very critical business risk to the business, and even lead to the eventual folding up if the business does not have enough money saved for rainy days to handle such problems.

In your business plan, you should demonstrate that you have adequate financial strength to operate your business until break-even and even after that. Provide the amount of needed investments and loans you will obtain to start and even run the business successfully – even if you are sure your sales volume will generate as much needed money to run the business.

• Risk of Inadequate Payback

When drafting your business plan, it is pertinent to always think about what the readers of your business plan will be expecting. For most people, it is how you intend to pay back the loan or investment you obtained, or the line of credit you hope to obtain from external sources such as banks.

For bankers, they would analyze the business plan critically to understand how exactly you have made plans to settle up the loans or line of credit you want to obtain from the bank. Your cash flows and your collateral issues are highly significant.

In the case of investors, the growth rates and profit margins of the business are highly critical because these are the factors that will actually determine how much they would earn.

For very vital employees, analyzing the business plan helps them have a good grasp of the business’ operation; this in turn would help them envision their future with the business. • Strategic Risk

Another critical business risk factor to your business plan is the strategic risk. Sometimes, your best well-laid business plan might very quickly, actually look so obsolete.

The strategic risk is the business risk that your business strategy might actually become too rigid and no longer efficient in shooting your business to its desired level; your business then starts struggling in order to achieve its business goals.

This business risk could be as a result of a very powerful new competitor in the industry; technological advancement; a shift in the demand of customers; or even a rise in the cost of raw materials or other market changes.

You should take out time to write your business plan such that whenever you face a strategic risk, you should be able to easily tweak your business strategy and adapt, and be able to come up with a viable solution.

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Risk assessment in business continuity planning.

EJ Phillips

A risk assessment is about identifying all the possible threats to your business and its processes, from wherever they might originate. It is an important part of a thorough business continuity plan.

Whether the disaster is natural, like a hurricane or pandemic, or man-made, like a cyber-attack, it is important to identify and plan for situations where you may not have immediate access to the data, resources, staff, or even locations you are accustomed to during normal business operations.  The goal of business continuity planning, after all, is to keep the business running no matter what happens.  Therefore, it makes sense that we would take some time to address all the what-ifs and plan for those things.  

The most common mistakes businesses make when it comes to business continuity planning and risk assessment include:

• Not accounting for loss of critical people.
• Not planning to accommodate the stress and trauma staff incur in a crisis.
• Not making the emergency plan easily accessible to staff at the office or working remotely or making plans that are too generic or are out of date.
• Failing to communicate plans and processes quickly and transparently and the resulting PR problems that can be related to recovery.
• No alternative emergency operation centers or recovery sites, or not having a plan for employees to work from home when a physical site isn’t available.
• Believing that outside assistance and insurance will take care of everything.

During the risk assessment process, you must look within your organization to:

• Identify processes and situations that can cause harm, particularly harm to people.
• Determine how likely it is that each hazard will occur and how severe the consequences could be.
• Decide what steps the organization should take to prevent these hazards, control the risks, or mitigate bad possible outcomes.

The goal of a risk assessment plan will vary across industries, but overall, the goal is to help organizations prepare for and mitigate risk.  Other goals include:

• Providing an analysis of possible threats
• Preventing injuries or illnesses
• Meeting legal requirements
• Creating awareness about hazards and risks
• Creating an accurate inventory of available assets
• Justifying the cost of managing risks
• Determining the budget to remediate risks
• Understanding the return on investment

Before you begin the risk management process, you should determine the scope of the assessment, necessary resources, stakeholders involved, and the laws and regulations you will need to follow.  Because the risk assessment process is so involved, it is most often best to consult with or hire a risk management specialist for this process.

5 Steps in the Risk Assessment Process

1. identify the hazards.

Look around your workplace and see what processes or activities could potentially harm your organization. Include all aspects of work, including remote workers and non-routine activities such as repair and maintenance. You should also look at accident/incident reports to determine what hazards have impacted your company in the past. These include but are not limited to natural disasters (i.e., hurricanes or fires), biological disasters (i.e., pandemics or foodborne illnesses), workplace accidents (i.e., slips, transportation accidents, or mechanical breakdowns), intentional acts (i.e., bomb threats, robbery or strikes), technological hazards (i.e., loss of  internet connection or power and cyberattacks), chemical hazards (i.e., asbestos or cleaning fluid spills), mental hazards (i.e., excess workload, sexual harassment, bullying), and interruptions in the supply chain.

2. Determine Who Might be Harmed and How

For every hazard that you identify in step one, think about who will be harmed should the hazard take place.

3. Evaluate the Risks and Take Precautions

Look at your list of potential risks and the effected people.  How likely is it that the hazard will occur?  How severe will the consequences be should the hazard occur? This evaluation will help you determine where you should reduce the level of risk and which risks should be deemed top priority.

4. Record Your Findings

If you have more than 5 employees in your workplace, you are required by law to write down your risk assessment process. Your plan should include the hazards you’ve found, the people they affect, and how you plan to mitigate all the risks. The record—or the risk assessment plan—should show that you:

• Conducted a proper check of your workplace
• Determined who would be affected
• Controlled and dealt with obvious hazards
• Initiated precautions to keep risks low
• Kept your staff involved in the process

This is a laborious process.  We recommend using a specialized compliance specialist, like CentraVance Consulting , to help with this.

5. Review Assessment and Update if Necessary

Your workplace is always changing, so the risk to your business change as well. As new equipment, people, and processes are introduced, each brings the risk of a new hazard.  Perhaps the new hazard is more widespread like the global pandemic Covid-19.  To protect your business and its reputation, you must continually review and update your risk assessment process to stay on top of these new hazards. By applying the risk assessment steps mentioned above and employing the help of a brand reputation specialist, you should be able to manage any potential risk to your business.  Get prepared by completing a thorough risk assessment as a part of a larger business continuity plan. After all, luck favors the prepared!  

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A Sample Template for Conducting Business Risk Assessment

By: Author Tony Martins Ajaero

Home » Starting a Business » Conduct Feasibility Study

How do you conduct a risk assessment on an idea when writing a business plan? Or you need a sample business risk assessment template? I advice you read on. Every business involves some risks. This may be little or much depending on the type of business as well as many other market factors.

Identifying, outlining, and assessing the risks involved in a new business and developing strategies to manage those risks is an important, in fact indispensable step to take when planning a new business.

The Importance of Conducting Business Risk Assessment

By understanding potential risks to your business and outlining strategies to cushion their effects, you will help your business recover quickly if an unexpected incident occurs. For instance, a risk assessment will unveil workplace risks that you or your employees are exposed to. And it will help you meet your legal obligation for providing a safe workplace and reducing the likelihood of workplace mishaps that can impact negatively on your business.

Types of risk vary from business to business, but conducting a risk assessment and preparing a risk management plan involve a process that is common to all business. It goes without saying that the first step to take when conducting a risk assessment is to identify potential risks to your business. Understand the scope of potential risks will help you come up with realistic and cost-effective strategies for handling them.

When considering the types of risks that your business is prone to, it is very important that you think broadly. This is where many people go wrong in their risk assessment; they focus only on the obvious concerns like fire, theft, competition, etc. without paying attention to subtle but equally dangerous concerns.

Assessing your Business for Possible Risks

Only after assessing your business can you successfully identify the risks associated with it. Start by thinking about your critical business activities, which includes your main services, your resources, your employees and factors that could affect them or their work.

These factors include natural disasters, accidents, power failures, and illness. By assessing your business this way, you can work out those aspects that are indispensable to your business.

Conducting Business Risk Assessment – A Sample Template

After assessing your business to get a clear picture of it, you can start identifying the risks involved. Go through your business plan to see those things your business cannot do without, and list some possible risk factors that could cripple those indispensable things. Asking yourself the following questions will be of great help:

• How, why, when, and where are the risks likely to happen in my business?
• Are the risks coming from within or from external sources?
• Who might be affected if an incident occurs?

Don’t just think of what answers you have to these questions, write down your answers. Then start asking yourself as many “what if” questions as you can, using the various risks you have in your list? The following are examples of such questions:

• What if power supply ceases suddenly?
• What if key documents are destroyed?
• What if vital information gets lost due to hard disk crashes or virus attacks?
• What if an intruder gains access to confidential information?
• What if one of your best employees quit suddenly?
• What if your competitors reduced the prices of their products by half?
• What if your suppliers went out of business?
• What if the area you have your business in is affected by a natural disaster?

Also write down your answers to these questions. By now, your risk assessment is gradually taking a good shape. But you are not done yet. After identifying the potential risks to your business, brainstorm with other people, such as your financial adviser, accountant, staff, and other interested parties. This will help you get many more perspectives on risks to your business.

Aside the ones you have listed, think about the events that have affected other businesses already in market, especially your competitors. What factors led to those events? What were the outcomes of those events? Don’t you see them happening to your business, too ? Answer these questions, and you will be able to identify even more risks that may be from external sources.

Don’t forget to identify each step involved in your work processes and outline the associated risks. Think of what factors could hamper each step and how this could affect the rest of the process. Once you have identified the risks associated with your business as explained above, you will need to analyze the likelihood and consequences of each, and come up with options for managing them.

After completing your rough draft, review it, and reproduce it in a better and more presentable format.

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