Saturday, May 21, 2011

Risk Management as a Part of Business Plan ? Entrepreneurship In A Box

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Risk Management

Risk Management

A modern business plan that will lead your business on the road to success must have another element and that is a part where possible risks will be covered.

We can plan and predict that things on a certain way will be done, but our impact is not always in our hands. There are many external factors when it comes to a business that can affect the realization of the plans. Because of that, these factors should be viewed through the prism of risk if we want to be able to implement an appropriate management process during the implementation of the plan.

What is a risk?

In dictionaries the risk is usually defined as:

The possibilities of dangerous or bad consequences to become true.

When it comes to businesses, entrepreneurs or in this case the process of business planning, it is the possibility certain elements of the business plan to not be implemented as they were planned that could result in dangerous or bad consequences.

Basic features of risk

Basic features of risk are:

  • It is partly unknown ? The work of an entrepreneur would be too easy if it is easy to predict risk. The biggest problem is that he is partly unknown because it can appear in the future.
  • It is changing over time ? Since businesses operate in a dynamic environment, we cannot expect that it would be something default that will always exist.
  • It can be predicted ? It is something that if we want, we can predict through a systematic process.
  • It can and should be managed ? W can always focus our resources on eliminating or reducing risk in the proper area where it is expected to appear.

Risk Management

Risk management cannot be viewed as a static process, but as an interactive process in which information will be constantly updated, analyzed, will act upon them and will be reviewed in a certain period of time.

This will contain the following elements:

  • Defining areas ? Where is the biggest risk?
  • Determining the indicators ? What will be the risk?
  • Monitoring all those areas ? Is the indicator appeared during the operation?
  • Taking concrete activities to deal the risk ? What can we do?
  • Monitoring of implemented activities ? Whether we have taken over the right measures?
  • Revision - Can anything be improved? Is there a need for new indicators?

What need to be included in the business plan?

Now we need to transfer the process of risk management into a title of a business plan that we create.

1. Defining areas

For a business, these areas can be defined in different ways. But basically to start you can use the following:

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

2. Main indicators

Risk indicator is a kind of measure that should tell us whether the risk is appeared in a particular area.

Let us take an example. For distribution channels, indicator can be a delay of delivery for a minimum of three days that will tell us that something is wrong with that channel, and we must respond to it on a proper way.

3. Monitoring

The purpose of this step of the process is to monitor areas through indicators to see if there is something wrong.

For example, if delivery is late more than three days we know that the risk is justified, and we would have to move to the next step.

In this part of the business plan for each area and indicator we need to establish a system for monitoring by delegating responsibilities.

4. Action

Once the risk has appeared and is located it is time to take concrete actions to prevent it in the future, reduce or completely eliminate their influence on the business operations or the execution of business plan.

To continue the example for distribution channels with delivery delayed more than three days as possible activities would be the following:

  • Apologizing to the consumer for delay,
  • Determining the reasons for the delay,
  • Analysis of the reasons
  • Removing the reasons
  • Consideration of alternative distribution channels ?

In this part of the business plan for each area and indicator try to standardize all possible activity. We can not expect that they will be final.

5. Monitoring of implemented actions

Because this management process is a dynamic process monitoring must be part of it. In such a way we can ensure the elimination of that kind of risk in the future and resources would be directed to new one.

The example above should answer the following questions:

  • Is the apology accepted?
  • After eliminating causes, are there again cases of delay?
  • What about new delivery channels? Are they timely now?

6. Revision

As the last step that needs to be planned is, when and how to conduct a revision of areas and indicators.

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Source: http://www.entrepreneurshipinabox.com/1717/risk-management-as-a-part-of-business-plan/

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