Among large corporations, risk a big subject. Individuals companies commission enormous surveys to measure the risks facing their businesses so that they can come up with a strategy to manage them. But for small businesses, risk is often off the agenda. Somehow it doesn’t seem as relevant when you’re the one dealing with individual clients on a day to day basis.
Managing risk, however, is essential for small companies, especially since many don’t have the resources to cope with the financial fallout of those risks, should they strike.
The risk management industry itself is large. It comprises more than 30,000 firms which between them generate around $6 billion in annual revenue in the US alone. So what do you need to know about risk to prevent it from ruining your life?
Find Out Which Risks Are Present
Many companies believe that if they have business insurance, they’re covered for all risks that they face. However, as www.Equifyllc.com/equifyinsuranceservices/ points out, this is rarely the case in practice. Although insurance does cover for some eventualities, it’s often insufficient to protect you against all possible ways in which your company could lose money. What’s worse, uninsured risks often have a high probability of occurring, meaning that lack of coverage isn’t benign – it can severely damage your business should the worst happen.
Thus, your company needs to make identifying the threats that it faces a priority. Often companies go into the process believing that they face particular risks, only to find out that their risk profile is actually very different.
Put Risks Into Silos
Nick Bostrom is a researcher and author at the Future Of Humanity Institute – a group of scientists who try to figure out what’s going to happen to humans over the long term. Bostrom sees artificial intelligence as a significant threat to the future of humanity and has set about making the case that we need to find ways to control AI now or face catastrophe in the future according to www.theguardian.com/books/. Bostrom borrows from the world of finance to demonstrate the severity of the risk from a potential artificial superintelligence, setting out the level of risk and the consequences of risks in a sort of grid design. On one axis is the likelihood that something will go wrong, and on the other, is the level of damage a bad eventuality will cause. On Bostrom’s table, the devastation from nuclear war is high – potentially wiping out civilization – but the risks are small. The risks from AI, on the other hand, are existential and, as Bostrom sees it, highly likely.
Your business needs to go through the same academic discipline. You need to silo risks, putting them into bins according to these two parameters: the likelihood they will happen, and the severity of the fallout should the worst come to the worst.
Different risk management techniques apply to different levels of risk. Transferring the risk from your company to an insurance company might be a good option. But you might also want to avoid risks outright.