Risk management is a broad term. It's often thrown around in the business space, but do you know what it means for your business? If you are ever wondering what areas of your business require risk management, an excellent place to start is with the things you have insurance for.
Types of Business Risk
Businesses take on risk in many different areas. Operational risk, legal and compliance risk, reputational risk, security risk, and personnel risk are just a few.
Operational risk is the risk of doing business in any capacity. For example, if you are a restaurant owner, your operational risk arises when you serve people food. If you store clients' data in your system, your operational risk is data security.
Whatever it is that your business offers, your operational risk is the potential for something to go wrong when you serve your clients. You need an operational risk management strategy in place that is unique to your business.
Legal and Compliance Risk
Legal and compliance risk involves the laws and policies surrounding your business. This is a major topic in the financial sector. There are specific laws about who is eligible for different financial products, and you need to make sure your firm abides by these laws.
Having a legal department that knows the laws in your industry, is on top of changes to these laws, and is involved in business decisions and operational plans is the best way to manage your legal and compliance risk. If you are not in a heavily regulated industry, you probably don't need a legal team on staff. Still, you should always have a lawyer who is familiar with your business look over new contracts, agreements, and policies.
Reputational risk is the risk your reputation will take if someone complains about your business. The best way to manage this one is to keep your IT security up to date and provide excellent service to your clients. As long as your clients' data is secure, and they are happy with your products or services, they will develop a positive reputation for your business.
Speaking of IT security, your security risk is another thing that must be managed. This means the security of your physical building as well as your online assets. A security breach can damage more than just your reputation with your clients. It can hurt your employees' credit scores or personal reputation if their data is stolen. It can also lead to problems for vendors that work with you.
A burglary can lead to injuries and damage to your building. This can lead to downtime, which can cost you a lot of money. A proper physical and internet security system is the best way to manage security risk.
The job of your human resources department is to manage the risk of your company's personnel. This, in itself, is a massive topic that covers everything from an employee falling down the stairs and getting hurt to someone stealing customer data.
It's risky to give other people control in your business because their mistakes can quickly become your problem. Does this mean you should fire all your employees and go back to running things on your own? Of course not! It merely means you have to be aware of what your risks are and have a plan in place to manage them.
We do offer insurance for most of the risks discussed in this article, and we suggest you carry any insurance that applies to you. However, your insurance should always be the final line of defense in your risk management plan. If you need help putting together a risk management plan for your business, give our office a call today.