Risk management planning usually gets pushed to the bottom of to-do lists. Yet, if the COVID-19 pandemic has taught small business owners one thing, it is that having a risk management plan is vital. A last-minute plan is not going to be as thoughtful or comprehensive as one done in advance.
Typically, my clients who are contractors or who do other project-based work are the ones most amenable to spending time making risk management plans. That is because in these cases, risks can throw a project off schedule or over budget quite quickly. But no small business is immune to risk, and the impacts can be significant.
Most businesses in the Gulf South have hurricane contingency plans because hurricanes are a likely enough risk. But what if your supplier goes out of business? What if a state law changes, and poses new and significant regulatory hurdles for you? What if a new competitor comes out with a superior product? These are just some of the hypothetical risks for which a small business should be ready.
So, how does one create a risk management plan? It is not as hard as it seems: it takes a bit of creativity and a strong understanding of the resources available to your company. There are always going to be what are called “unknown unknowns”, scenarios that are impossible to foresee. We focus on the “known unknowns”, scenarios that we can anticipate may happen in certain situations.
Begin with a brainstorming session with your management team. Consider inviting representatives from various departments. Write down as many “known unknowns” as you can.
Select the scenarios on which you want to focus. Create a matrix that organizes them on one axis by their likelihood and on the other axis by their impact to the company.
Start with the highly likely scenarios that will greatly impact your company and work back towards the less severe scenarios. Consider the resources you may need, both human and financial. What do you already have and what will you need to obtain? How does your communication plan fit into managing each situation? Will you need outside support from government agencies? How will vendor relationships be impacted? What else will you need? Just like every building has an emergency evacuation plan, you will create an emergency response plan for each risk.
Creating a risk management plan will not make your company impervious to risk. It will, however, make your company more proactive than reactive when dealing with risks as they arise. It will make you think about your company in different ways and explore whether you can weather the storm of a new crisis. You will also have time to prepare if the planning exposes any weaknesses.