5 Steps To Analyze Risk In Your Business

Success is not something you protect. It's something you risk.

A lot of cheerleaders in the business world preach that success involves throwing an intention out into the universe, with the physics of optimism as your sole force of forward motion, to achieve a specific goal or objective. While oftentimes effective, this school of motivational philosophy often overlooks other critical areas of business that many people avoid or disregard altogether, including a thorough analysis of risk within their organization.

Successful people enamor me. I spend a lot of time watching and observing countless entrepreneurs I know personally, as well as those I admire from afar. I love to study their behavior to better understand what they do differently, why they do what they do, and what makes them tick. In this process I've identified a pattern in many of them, which is their ability to constantly look into the future, contemplating what-if scenarios in their business, and always looking for what lies ahead, especially when it comes to the risk they face in their business. Assessing risk is sort of like budgeting for the downside. The key is to not only use optimism for reasons to take action, but to also utilize risk factors you uncover to guide your decisions. Yes, you must have courage to bet on your ideas, but you must also have the ability to take a thoughtful, calculated approach. It's nearly impossible to remove all risk in any scenario, but what's important is to make sure these troublesome areas are always considered and understood. This ensures that no opportunity you embark upon is executed naively and without thoughtful consideration. Understanding this concept is absolutely critical if you aim to build something great that will sustain for many years to come. Entrepreneurs are known for their ability to take on large amounts of risk that would make most people sick to their stomach, but successful ones don't do it blindly.

Try taking a stoic approach in your business by being honest, realistic, and open about the kind of risk you face in your business. This enables you to look ahead of you, behind you, and in all other directions, no matter how uncomfortable it may be to do this. Your biggest vantage point will always be the one on which you can envision the full panorama of potential successes - coupled with their corresponding potential failures.

A pivotal piece of building a solid foundation is built for your business is to conduct a risk analysis on a regular basis. I like to do this at least once a year for each business I run; for startups (or established businesses in rapidly changing industries such as tech) I recommend doing this at least twice a year or more because the environment around you will be shifting rapidly. To protect and empower your company to grow successfully, it is extremely important to stay on top of new risk factors as they emerge.

The easiest way to do this is to conduct a risk audit on your business by compiling everything into a spreadsheet. Once it is completed I like to print it out and place it somewhere in my office where I will see it often. I recommend setting up an Excel or Google spreadsheet with five columns, labeling each one with the steps below:

Step 1: "KEY RISK":
What is the risk factors facing your business? Risk factors should include your competition (rising costs, lower prices, surplus inventory), the economy, your industry (how susceptible is it to change?), technological changes, consumer preferences, rising costs, key personnel within your organization (what if you lost your top producing sales agent?), industry regulations, etc. Don't forget to also consider burnout as a risk factor if you're a founder. Trust me, it happens.

Step 2: "RISK SCORE": How do I weigh this risk on a scale of one to 10? After careful consideration, you should score each risk factor you identify so you can sort by rank once you are done. This does not mean a risk factor you rank as a two is to be neglected for the risk factor you assign a score of nine. This simply allows you to prioritize which risk factors you should be engineering a contingency plan for first (queue step 3 below).

Step 3: "CONTINGENCY PLAN": What is my contingency plan for this risk? Ask yourself, "What can be done if this does actually happens?" and then begin to compose the steps you think are necessary to alleviate or deal with the risk. Keep in mind some risk factors are out of your control and have terrible mitigation plans (e.g. if your company is AAA Taxi and your obvious risk is technological advances via Uber, you might be facing a bigger uphill battle).

Step 4: "PERSON ACCOUNTABLE": Which person in my organization is responsible for this risk? Some risk factors may not be something any one person can be accountable for, such as economic downturns, or a major change in technology, but regardless, try to identify a key person to assign to each risk factor you identify in your business. This will help you visualize how the risk management is spread throughout your organization. If you have too many risk factors falling on one person's plate (HINT: it's usually the founder), then that itself is also a risk factor. Can the founder delegate any of these areas of responsibility? What happens if the founder gets burnt out, or become sick? In that scenario, the company will have an even bigger problem on its hands.

Step 5: "DEADLINE": What is the deadline for executing a mitigation plan for this risk factor? Putting an "If then, then what" action plan into place will help serve as a guide if and when the risk factor surfaces. Some risk factors can be completely wiped out from your organization (such as safely removing toxic or litigious people from your organization), so if that is the case, your mitigation plan could include the steps to take to eradicate it completely.

I often tell my employees that asking for feedback is a valuable way to improve your skills in business, and it's one of the only ways we can see our blind spots. Asking for feedback is an uncomfortable thing to do, and conducting a risk analysis and assessment on your business can be just as tough. You will see things you might be aware of, but have been avoiding for quite some time. You'll also discover other areas you haven't noticed until now. Be prepared to touch the place that hurts, because that is where you will create the most growth.

Take some time to thoughtfully evaluate the risk you face, and understand, again, that risk is an inherent part of business. To me, risk is a necessary motivator that keeps me moving. It's part of what gets me out of bed every morning, ready to conquer any way I can. Well thought out and calculated risk is not foolish, it's strategic; it's a daily opportunity for improvement. Imagine what you will be able to learn in the process about your business, and maybe most importantly, about yourself, too.

Between calculated risk and reckless decision-making lies the dividing line between profit and loss. - Charles Duhigg

Remember, jumping out of an airplane and expecting to grow wings before you hit the ground is hopeful at best, but guaranteed fatal. Are you doing the same with your business?