As a small-to-midsize business (SMB) operator, here’s the thing you need to know about risk:
IT’S EVERYWHERE… ALWAYS.
That might sound like an exaggeration, but it’s the reality that every business faces.
What separates failing businesses from flourishing businesses is how they manage their risks.
We surveyed SMB owners, operators, managers, and associates to learn about their experience with risk management practices. Later, we’ll discuss the role risk management software plays for the risk-aware SMB.
Here’s what we’ll cover:
Almost All SMBs Practice Risk Management
Before we dive into our findings, let’s set a quick definition of what we mean by risk management:
Common business risks include financial impediments and uncertainty, legal and regulatory compliances, errors in operational strategy, and accident, happenstance, and natural disasters.
Going into the research, we did not expect the overwhelming majority of SMBs to have a defined risk management strategy. While risk management is innately baked into most all business decisions and processes, having a formal risk management strategy in place requires enormous forethought and discipline.
So, you can imagine our surprise when we found that 89 percent of respondents say they work for a company with formal risk management practices.
After contemplating the data for a while, it makes sense that SMBs are practicing risk management.
It’s a cut throat time for small businesses, and only those that are the most risk aware will continue to find sustained growth.
While 89 percent of the respondents say their company has a defined risk management strategy, less than half of respondents indicate that their company has clearly defined and communicate the risks facing the business.
This communication is key for managers and associates to be comfortable and confident executing risk management practices. Which leads us to our next conclusion…
SMBs Are Comfortable With Risk Management Practices
While we were impressed with the amount of SMBs practicing risk management, we wanted to dig deeper into how comfortable their actual practitioners are.
Given the delicate and technical nature of risk, it is again quite surprising to find that 47 percent are “somewhat comfortable” and 28 percent are “extremely comfortable” with risk management. For those respondents who identified as having managerial roles, 78 percent are somewhat or extremely comfortable with risk.
Comfort with risk in a managerial role is particularly crucial since managers take risk management strategies from executives and direct their associates to operate with the strategies in mind.
Picture a scenario where a manager completely ignores any potential risks facing a business. They might:
- Employ sweeping new sales tactics without first testing them.
- Bring in new products to sell without first determining if customers are interested in them.
- Underestimate the amount of staff to have on the clock.
That lack of risk assessment can be damning to a business.
The opposite is also detrimental. A business run by a timid manager that avoids taking risks to grow the business will hardly last either.
An obsession with risk is just as toxic as a void of risk awareness.
Software Positively Impacts Risk Management Practices
Software is a central component of the most robust risk management strategies: these systems help you identify, track and overcome the risks facing your business.
While these systems aren’t a hard requirement for all businesses, they certainly offer a leg up on the competition in terms of risk.
Given 90 percent of our respondents say their company practices a formal risk management strategy, we weren’t surprised to find a majority of them using some sort of risk management software.
And what is the experience for this majority of respondents that use risk management software? It turns out that an overwhelming portion of these respondents are pleased with their investment in the software.
In total, 91 percent of risk management software users in our study rate the effectiveness of their software as “good” (62 percent) or “excellent” (29 percent).
Which goes to show the 40 percent of businesses without risk management software just how beneficial adopting software could be—not only for their risk strategy, but for the overall business.
But what should these businesses be looking for in a system?
Key Features of Risk Management Software
Audit & Assurance
Risk auditing is a central component of any risk management strategy. Auditing teams/departments, projects, assets, and individual employees is key to spotting trends and identifying potential risks.
Many risk management systems actually provide measurement tools to determine the validity and severity of the risk in question. These measurement tools are valuable for prioritizing the order in which risks need to be addressed.
Risk Incident Register
When incidents of risk happen to your business, it’s important to note these so that they can be analyzed with the rest of incident and potential/identified risk incidents to spot greater trends. Tracking risks and the actualization of risks in this way can help a business avoid making the same mistake twice.
If you don’t already have formalized risk management practices in place, that would be a great first step.
Also take time to regularly answer questions about your business and risk strategy. A few of these questions might include:
- When is the last time you defined key risks facing the business?
- Which employees should be educated on business risks? Have they been?
- What is on the horizon that could pose potentially disruptive risk to our business/industry/economy? What, if anything, can we do about it?
Research various approaches to risk management and build a strategy that fits your unique needs. The U.S. Small Business Administration (SBA) has a wonderful presentation introducing small businesses to various risk management strategies. You can click this link to download the PowerPoint.
If you already practice risk management techniques, maybe it’s time to fold a dedicated risk management software into your plan. Head over to our risk management category page to read reviews on top risk management software from your SMB peers. These reviews will help ensure you get the best risk management software in place to help sustain growth for your business.