To maximise chances of success, ensure the risks taken are the right ones.
Risks are part of business, but you need to balance the downside with the upside. Take risks that may allow big wins, and avoid risks when there’s a minimal upside. The challenge is to err both ways.
There are steps to calculate the trade-offs of the decision process:
Brainstorm all possible Risks
The Plan is finally ready. Now it’s time to consider both internal and external risks that may impede tactics and efforts to put the plan into action. All ideas are acceptable, no comments or judgments are made at this point, and no solutions needed. Once you have a list of Risks, prioritize them.
Determine the probability of Trouble
From the list of Risks, determine how likely each one of the troubling events is to occur. As certain specific events may not occur, perhaps focus more on categories and types of events (eg., weather-related, supply line, failure of a customer, etc). A class of risk may be more useful from this summary, perhaps a; “cash flow related”.
Assess the impact on the Business
The likelihood of occurrence is now clear, so assess the level of impact on your business, perhaps using a scale of say 1 to 10 (low to high). Perhaps chart the risks on a horizontal axis and the impact on the vertical axis, easy to do with a pencil and a sheet of paper. This helps a glance to further clarify what are possibly the key concerns.
Ignore all low-impact Risks
If it’s low impact, even if high-likelihood, perhaps it may be ignored to be dealt with when or if it occurs. It would be a waste of time and effort to focus on these for long, certainly document what could be done to mitigate these impacts but not in great detail (eg., ‘take insurance for shipments’).
Adjust the Plan to minimize or avoid High Impact Risks
This is where the effort is needed. First, could the plan and strategy be changed to avoid the 3 or 4 key risks, or to make them low-risk? If not, how could the risk be mitigated if they did occur, some creative thinking or bits of advice may be needed for these.
No business is without risk and if one is scaling up or growing quickly, there is likely to be more risk than other businesses. But that doesn’t mean that a lower chance of success needs to be accepted.
By properly assessing all of the risks that may arise and categorising them for impact, the business plan could be amended to either avoid the key risks altogether or at least minimise the repercussions. A couple of hours can prevent a lot of concern at a later time.
Cam Finlay (Arnold & Finlay Accountants & Planners Pty Ltd)