Your risk register: mitigation and management
We’ve written about the importance of creating a comprehensive risk register for your business, and why you should include climate risks as part of that process.
This blog covers reviewing your risk register to ensure it’s always relevant to your business and the influences on it, and to introduce ideas for mitigating risks, where that’s possible. As always, we’re very happy to answer your questions, so just get in touch if you’d like to know more.
Why should I review the risk register?
Your risk register is an active document, and the issues it covers can have a considerable impact on your business. There’s no point going through the process of creating a register if you don’t review it regularly to make sure it is still current and relevant – and to add new risks where you are aware of them.
How often should I review?
This may vary from business to business but, given the significant pace of change in the marketplace, we’d advise that you should consider reviewing the risk register as part of your monthly departmental meetings and then as part of your board process every quarter.
You may also want to consider having an external review of your risk register on an annual basis to make sure that you have picked up all of the risks associated with your business and that you have an objective assessment of your risk likelihood and risk analysis.
How do you review a risk register?
This should be a fairly straightforward process – once the register is created, a review simply means you are checking that what’s there still applies to your business as it is today.
The questions you should be asking include:
- Are the risks listed still relevant? Has the likelihood of this risk occurring changed? And are the consequences any different?
- Are there any new risks that have emerged? Say, for example, a pandemic!
- How have we progressed with any mitigation strategies since the register was created, or since the last review?
- Have the teams and departments who are responsible for delivering the mitigation strategy put them in place? And are they effective?
It’s important that you get as many people in the team involved as possible – team members often see risks in more practical ways and may have differing views on the likelihood and consequences of risks on the business. It’s often the case that those at the top of the business may not see the emerging risks as early as someone who is on the coalface, so good communication and collaboration is vital.
What is risk mitigation?
Risk mitigation is where we come up with a plan or strategy to prepare for the identified risk and to reduce the effects of the threat that is faced by the business.
Some risks may be relatively easy to mitigate. These could be things like the risk of fire, for example where you would think about making sure that the fire alarms work and that the team know what to do should there be a fire, and that you’ve built a disaster recovery plan and have adequate insurance in place.
When it comes to issues like climate change, we should accept that we cannot remove all risks to our business. What we can do is reduce the risk and build businesses that are more adaptable and flexible to the changing environment that we face.
So, mitigation is about coming up with an ‘early warning system’ so you can see if the risk is affecting your business or is already occurring. It’s about preventing the risk from affecting your business as far as possible, and making changes early so you can avoid any ongoing risk.
How do you decide on mitigation?
Once you’ve identified the key risks to your business and you’ve assigned priority to them, you need to decide what to do about them.
So if we take inflation, for example, what does a small business do to mitigate or reduce the risk that they face?
Business owners can’t stop inflation from affecting their businesses. It is a force outside our control. So we need to consider what we do to reduce the impact on our profits.
Many of us have not run a business under inflationary or under significant inflationary pressure as it has been relatively low for more than 10 years
What we’re starting to see in the marketplace at the moment, however, are lots of drivers of inflation:
- increase in National Insurance taxation
- increases in the minimum wage
- increase of imported goods
- shortages of qualified staff to deliver services and make products.
All of these things add up to increased prices from your suppliers but also increased overheads – for a small business, this means that the profit you’re making is going to start to shrink.
What you need to do is to mitigate the risk of increasing prices. But how do you do that?
Start by:
- Reviewing contracts with your suppliers – perform an exercise where you consider whether each of your suppliers is giving you value for money.
- Consider agreeing to longer-term contracts with your suppliers, so you have more of a guaranteed price.
- Reviewing your system for monitoring the profits made on each and reviewing projects each quarter at the board level – do you see patterns How can you be more efficient?
- Considering your pricing strategy – does it reflect the increasing prices that you are suffering?
- Considering adding annual reviews and annual price increases – for example at a percentage equivalent of the current inflation rate – into your contracts.
If you have long-term projects or are sourcing products on behalf of a client, can you put protections in your contract such that the price you charge the customer reflects any increase in cost you have had to incur?
You should also consider how you identify all of the projects that you are no longer able to deliver because they own now unprofitable, and how you might be able to replace that income stream.
A mitigation strategy for each risk
It may seem like quite a task, but it puts your business in an excellent position to manage the difficulties or challenges that will almost certainly come your way. The better prepared you are, the more likely your business is to survive and thrive – and that’s why we’re all in business in the first place.
A comprehensive risk register is also vital for good business strategy and financial planning, helping you to see exactly what’s needed in the months and years ahead to help you reach your goals.
To find out more about managing risk in your business, and how it affects both day-to-day running and long-term success, please get in contact.
Please note: This is not meant to constitute professional advice. It is generic guidance only and things may have changed since it was written –please always seek specific & tailored advice for your circumstances.