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Importance of Risk Management for Entrepreneurs

Author: Andrew Jackson

Ask business owners what the majority of their time is allocated to and many of them will respond by saying, Putting out fires. While many are unavoidable, some of these business owners spend their time putting out fires because they didn't prepare for them. Finding fires before they find you won't just save time but will also save money. Actually, proper risk management will take you even further leading to improved efficiency and margins.

Are You Prepared?

Are you prepared for a missed deadline? If a client is expecting valuable information and you can't produce that information on time, how will it look in the client's eyes? Not good of course. But what if you had a backup plan in place, a plan that guaranteed you would either meet your deadline or that allowed you to adjust the deadline based on certain circumstances that were out of your control? This would allow for much easier communication with that client. (For more, see: The Real Risks of Entrepreneurship.)

What if you're waiting for a subcontractor that doesn't deliver on time? If you're not prepared, then you will spend a great deal of time trying to think of how you can maximize your time. However, if you had planned for this potential event ahead of time, then you would already have that plan in place. This, in turn, would save time and time is money.

What if there are disruptions in your supply chain? How will you adjust? Once again, if you had planned for this potential event ahead of time, you would save time and money. (For more, see: 10 Characteristics of Successful Entrepreneurs.)

How to Prepare

Many variables separate entrepreneurs from "wantrepreneurs." One of those variables is preparation. An entrepreneur will look at his or her business plan and determine potential strengths, weaknesses, opportunities and threats. Planning for each ahead of time won't just reduce expenses but increase top-line potential.

What are the risks for your business? Once those are identified, what will the potential impact be, and what actions will you put in place to mitigate the damage in regards to cost, scheduling and performance? (For more, see: Are You an Entrepreneur?)

If your business is in one of the following industries: construction, architecture, aerospace and defense, computer networking, telecommunications, or software development, you might want to hire a project manager. A project manager will plan, execute and close a project. He or she will also help prepare for any unexpected events which will lead to faster intervention.

Training

Reducing fire-fighting in business shouldn't be left solely to the project manager. It's also possible that your business isn't in one of the industries listed above. Let's say you own a business that sells a service. If you train your employees well on how to set up appointments, deal with objections, and close sales, you have an advantage. But many businesses stop there. If sales aren't good, they blame their salespeople. The correct approach is to evaluate the results of the training, then make necessary adjustments in order to maximize time and sales potential. Evaluation is often overlooked as a part of the risk management process, and it doesn't just pertain to employee training. It can also apply to product mix, supply chain, innovation and more. (For more, see: Why Entrepreneurs Are Important for the Economy.)

The Bottom Line

If you want your business to reduce expenses and increase top and bottom-line potential, you need to implement a risk management plan as soon as possible. If you identify problems before they occur, you will save time and money while also improving your odds of increasing market share. (For more, see: The 10 Greatest Entrepreneurs.)

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