Risk Management: Increasingly Essential for SME Business Survival

The COVID-19 pandemic has shown how important risk management is for SME business survival. It’s essential that SMEs take a proactive approach to risk.

In practice, SMEs often fail to conduct any systematic risk management at all. This can be fatal for SMEs, which have fewer resources and expertise than huge corporates to help weather catastrophic scenarios.

Why risk management for SMEs is vital

Risk management is an essential part of any business strategy. It helps your business identify and analyze any threat to the organisation.

Identifying and mitigating risks helps your business:

reduce uncertainty
plan meticulously and execute successfully
reduce expenses and losses
improve your reputation.

Key types of risks for SMEs

There are a number of key risk types. It’s important to understand that once any single, significant risk is realised it tends to impact other risk areas too.

This year’s pandemic, for example, quickly puts businesses at financial risk, strategic risk and business-interruption risk.

Understanding the risk categories below can help your business brainstorm how these risks exist for your enterprise.

Financial risk

This is the biggest risk most companies face. What happens if your business has, for example, to close for two months and there’s no income? How long can the business survive? How long can you keep the lights on, pay the staff and invest in growth?

After 2020, this is a familiar scenario. All SMEs should create a contingency plan and have three to six months of operating costs in reserve.

Reputational risk

Your reputation is your greatest asset and the risk that’s most commonly overlooked. Nowadays, your business is discussed on open forums for the world to see. It’s imperative to have a social media policy and to participate in online conversations about your business.

Legal risk

There are a number of liability risks – employee or customer injuries, property damage or contractual failure – that can lead to costly lawsuits and fines that most SMEs don’t have the resources to pay. To mitigate liability risk, invest in sound legal advice and have adequate and appropriate insurance cover.

Supply chain risk

What contingencies do you have in place if your supply chain is broken? A disaster that interrupts a supplier’s business operations could cripple your production capabilities.

Operational/business interruption risk

This risk stems from failures in your organization’s day-to-day processes. They can include technical failures like your server crashing, mistakes made by employees and process weaknesses.

Similarly, production could be interrupted by a natural disaster, such as a flood or fire, that closes your business premises. To minimize operational risk, SMEs should prepare and practice a business continuity plan.

Human capital risk

People are the backbone of most SMEs. Can your business continue functioning if a person who is crucial to the operation leaves unexpectedly? To mitigate this risk, create operation manuals for all key tasks, ensure that staff members can fill in for each other and consider key persons’ insurance.

If your company is family run, have a succession plan and ensure all employees are up-to-date on industry developments.

Strategic risk

Every SME should have a documented business strategy that includes ideal structure, target market, sales and marketing, and production. SMEs must be able to adapt to a shifting external environment and ever-changing marketplace. Mitigate this risk through ongoing research and planning.

Regulatory and compliance risk

An SME – however small – must satisfy all regulatory and compliance obligations of the industry in which it operates.

Security risk

Cyber risk is the threat of disruption, financial loss or reputational damage due to a failure of your IT systems. Today, hackers pose a very real risk to all businesses. SMEs are just as obliged to protect their customers’ data as corporates are. This security risk must be actively mitigated through security protocols and ongoing monitoring.

Intellectual property risk

You need to be able to protect the intellectual property that makes your company innovative. All SMEs must identify, license, protect, register, enforce and monetize their intellectual property. If not, it may be stolen or copied.

Business assets risk

Always insure the value of your business assets against theft, fire or other events.

How risk management software can help

It’s essential – and time-consuming – to formalize risk management. isoTracker’s risk management module makes this so much easier by simplifying the process, improving efficiency and, ultimately, leading to an improved bottom line.

It records and monitors risks using a fast, accurate and centralized, cloud-based platform.

The system uses automated notifications and workflows to assign and track risk mitigation tasks, and benefits from up-to-date risk analysis and reporting.

Key features include:

central recording of risk details
automated risk rating
assignment and tracking of risk mitigating tasks
maintaining up-to-date records for risk reporting and compliance purposes
advance risk analytics and reporting.

Why isoTracker’s risk management software is suited to SMEs

Our risk management software is designed to be affordable for small to medium-sized businesses. The software is ready to use but is fully customizable. It can stand alone or integrate with our other quality management software.

An effective risk management solution has the following advantages for SMEs.

Fewer surprises

Issues can be identified and mitigated before they become severe, which is cheaper and less resource-intensive.

Realistic expectations

Knowing and managing risks improves project success rates and improves staff morale, motivation and productivity.

Better decisions

Better quality, up-to-date risk data means better decision-making, which leads to better budgeting.

Clear escalations

Clear processes ensure that the right risks are assessed by the right people at the right time, so key decision makers can focus on what’s important.

Easier compliance

Risk management software simplifies compliance with ISO 9001 and other standards. It also supports a culture focused on risk, with risks identified and mitigated at all levels.

isoTracker

isoTracker offers modular, subscription-based quality management software that’s secure, cloud-based and affordable. It includes a document control module, as well as complaints management, audit management, and training modules, with built-in CAPA capabilities.

Digital quality management is one, straightforward way for small to medium manufacturing businesses to start realizing value from Industry 4.0 – and with isoTracker’s QMS, it’s easy and cost-effective to implement.