Types of Business Risks
Financial, operational, and compliance risks pose major challenges to businesses, regardless of industry or size. While the level of risk may vary from one company to the next, threats come in many forms. These three risk categories can be broken down into more specific concerns, including:
- Financial and Credit Risks: Managing cash flow, setting appropriate trade credit policies, and maintaining access to capital are important parts of protecting a business from financial threats.
- Operational Risks: Destruction of property, supply chain failures, cyber threats, and labor concerns can all threaten a business’s ability to operate.
- Compliance Risks: Businesses must contend with rules, regulations, and laws that govern their behavior. From anti-money laundering statutes to human trafficking agreements, companies are expected to follow the rules.
How to Identify Business Risks
Finance, procurement, and compliance professionals all have their own risk management procedures to guard against the greatest threats to their business unit. Some risks are easy to anticipate, such as late payments from customers or the necessity to comply with laws. Other threats occur with less frequency, but still carry serious consequences; fires, tornadoes, or an economic downturn can have devastating effects on a business.
There are a variety of tools designed to help businesses manage risk:
Business Credit Monitoring: Checking a business’s credit scores and ratings helps set reasonable trade credit terms that don’t expose a company to unnecessary risk. Continuous monitoring allows companies that extend trade credit to respond to positive or negative financial developments.
Compliance Platforms: Third-party tools offer visibility into a company’s management, associates, and corporate connections to identify potential problems, including concerns around money laundering, politically exposed persons, and forced labor.
Anti-virus Software: Network security is a must for businesses. There’s simply too much at stake – from customer data to proprietary information about products and performance. A successful cyberattack can also expose a business to lawsuits and reputational damage. Anti-virus software is the first line of defense against such risks.
Business Insurance: Purchasing the appropriate amount of insurance protection can help a company weather the storm when something does go wrong. No mitigation strategy can protect against all risks, but business insurance may be the difference between survival and bankruptcy. Business interruption insurance is particularly important, as it can be used to replace lost earnings due to covered events such as fires or floods. Standard business insurance policies don’t take these damages into account.
Enterprise Risk Management is a Constant Concern
Businesses are never done managing risk; they must monitor their processes and protections to make sure that what worked yesterday is still effective today. The nature of threats facing companies is also bound to change alongside technology, the economic climate, and environmental factors. Those tasked with managing enterprise risks cannot rest on their laurels, but must remain vigilant against new and evolving challenges.
Learn more about enterprise risk management in the articles above.