The question of how to reduce operational risk is one that should be on the mind of every business owner. It doesn’t matter if you run a hot dog cart or a multinational conglomerate. It doesn’t matter if you’re the only employee or if you employ a workforce that could populate a small city.
Whoever you are, whatever you do, you need to know about the many different ways your company is constantly exposed to operational risk. You also need to know what you can do to reduce risks so that they aren’t as much of a hazard to your company’s success.
Doing so is necessary to maintaining a competitive advantage. It also ensures that your company is able to keep a strong presence in its sector. Because no businesses are alike, the risks that they face will differ, so this post will take a broad look at how to reduce operational risk. By the end, you’ll be able to take the principles of what’s discussed here and apply them to your own business practices. This should allow you to reduce the impact of the losses that your business could incur as a direct result of risk.
4 Steps – How To Reduce Operational Risk:
Step 1: Managing Equipment Failures
For all of the good that technology has done for the world of business, the equipment that you use to conduct your operations can still break down. Depending on the severity of the failure, you could face crippling losses in revenue. It’s because of the fact that technology has become so intertwined with businesses that extra steps have to be taken to:
- safeguard information
- make sure all equipment works properly
- ensure alternate plans are in place in the event of a failure
If your company relies heavily on information technology (IT) infrastructure like a computer network, then make sure that programs and hardware are up to date and protected by the best security that you can afford.
If you operate in manufacturing, transportation, or any other industry that relies heavily on machines with a lot of moving parts, then the question of how to reduce operational risk can be answered by adhering to regular maintenance and making sure that small issues are addressed quickly enough that they don’t become large issues.
Step 2: Keep Strong Business to Business Relationships
Your business wouldn’t be able to survive without the work of other businesses. Whether you rely on another company for supplies, shipping, or anything else that you need to count on in order to run your own enterprise, it pays to keep strong relationships with other companies.
In thinking of how to reduce operational risk in this respect, you have to look at common risks like miscommunications, accounting errors, delivery failures, incomplete or missing legal documents and vendor disputes as ways that business to business relationships can expose your company to risk.
With this type of operational risk, you want to make sure that you and your vendors and suppliers are always on the same page when it comes to your transactions. It never hurts to double check figures and make sure that invoices, quantities, and other aspects of the business to business supply chain are correct.
Doing these things can keep your relationships strong and reduce the likelihood that errors common in these sorts of interactions will have negative effects on either side of the transaction.
Step 3: Having Adequate Insurance
You want to make sure that, in the event that something does happen, your business has the proper insurance it needs to cover the event.
It could be anything from property damage to a personal injury, but having an insurance policy that covers something that could negatively impact your business could mean the difference between a minor and major disruption in your business operations.
When thinking about how to reduce operational risk as far as your insurance coverage is concerned, go over your existing insurance policies and make sure that all possibilities are covered. It pays to consult with a representative of your company’s insurance broker to guarantee that you have all of the coverage you need.
From property insurance to liability, there are a number of different types of insurance that you can get to cover your business. Make sure you have them all and risk won’t catch you off guard.
Step 4: Know the Regulations
If you stay up to date on state and federal regulations as they relate to your business, then you take a huge step towards knowing how to reduce operational risk. Whatever it is that you do, you want to make sure that all of your business practices are well within the confines of the law of the land in which you operate.
Things like health and safety standards, employee wages, licensing and certification, taxes, and permits all have an influence on how you’ll run your business. Don’t let ignorance of the law lead to trouble later down the road.
Remember, running a business successfully does not need to be complicated. Keep it simple!
For more valuable articles to help you successfully manage the challenges of growing your business profitably, please search our blog at our website www.portalcfo.com.
Manny Skevofilax is a consultant and speaker that helps his clients successfully navigate the challenges of growing their businesses profitably. Since 2003, Manny helps businesses enhance their results by using his experience in strategic planning, financial statement analysis, operations, organizational development, and team-building. His consulting firm, PORTAL CFO Consulting, Inc., has attracted clients from diverse industries in the United States and abroad.
Manny can be reached at 410-808-3441 or via email at manny@portalcfo.com.