Whether you’re a budding entrepreneur studiously crafting your business plan, the owner of a new startup, or an old hand looking to branch into a new market, risk management should be woven into the very fabric of your business practices. The trouble is that many entrepreneurs, view risk management as an administrative box-ticking exercise (and a tedious one at that). They suck it up and play the game for compliance’s sake, but this often means that they can lapse into poor risk management practices and waste a lot of time and resources chasing their tails as a result.
If you’re just starting, out then you’re actually at an advantage. Startups tend to have small, independent teams who are granted autonomy and empowerment. Executives tend to be more malleable and open to new ideas, practices and innovations even if only because they have less to lose than the bigger players. These are ideal “incubators for innovation”.
Conversely, if you’re a veteran entrepreneur with a regimented risk management funnel, your approach to risk management may require a top-down reappraisal. Success, however, lies not with reappraising your risk management infrastructure, but with implementing changes in risk management strategy in a meaningful way for your business.
Risk averse doesn’t always mean risk ready
While it makes sense that risk should be avoided, it also makes sense that risk should bring with it a degree of opportunity. We learn from our mistakes in all fields of life and while mistakes can have damaging consequences in business, they can also be formative experience that lead to increased growth and efficiency.
Whatever your business’ size or individual needs, here are some strategies which you can implement to improve your risk management.
Risk can be a petri dish for innovation rather than an inhibitor. Because of this, many forward thinking companies like to create a safe, controlled, measured environment in which to manufacture a hypothetical risk that can be controlled, measured and managed in a formative and informative way.
A good example of this would be FMEA (Failure Modes and Effects Analysis) commonly used in construction and manufacture. Failure modes are ways in which a process or product can fail with wasteful or even harmful consequences. FMEA is used to describe the structured approach to the discovery of potential failures and the development of strategies to mitigate or eliminate those failures before product launch.
Another commonly used example would be the alterations made between ‘sprints’ in a scrum development model, for example. This enables developers to throw ‘curve ball’ problems at software and seeing how it reacts without it slowing or impeding the development process. Speaking of which…
The traditional ‘waterfall approach’ to software development goes like this:
While this approach is still widely used today, it’s something of a throwback to a time when the costs of making changes was prohibitively high. The increased affordability and availability of resources, developers no longer need to work in this way. The fundamental flaw of ‘waterfall’ or ‘cascade’ development, is that the testing is left right up until the end… the period in which most projects run out of time or money.
Agile development, on the other hand, is more fluid, breaking the analysis, design and coding into smaller ‘sprints’ and testing on a weekly or bi-weekly basis between sprints. Staying agile allows the visibility for risks to be detected early on, while allowing the presentation of risks to actively inform the development process and improve the product without missing deadlines or creating exorbitant costs to the customer.
Keep your source code in escrow
If you outsource the development of your business’ new website, program or app and the subcontractor goes bust halfway through the development, the consequences for your business could be crippling if the unfinished code you’ve invested in vanishes into the ether along with it. Storing your code in escrow allows you to retrieve the unfinished code when you’ve found someone more reliable to develop and complete it.
Phew, crisis averted!
Developing “growth layers”
When you start a business you begin by nurturing a very specific idea of what it should be and the functions that it should facilitate. Our natural inclination is to be rigid in our “vision” and actively resist anything that might conflict with your preconceived plans. Don’t be afraid to let risk management shape your business in new ways that you didn’t predict at inception. Very often, early stage diversification can be the key to healthy and sustainable growth.
In interesting parable for this is the agricultural company, Monsanto. They realised the impact of Genetic Modification on its seed business very early on, causing them to invest heavily in biotechnology research and development.