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What are the challenges of risk management in small businesses?

Awareness of risk management challenges

This article explores the existing challenges of risk management in small business organisations. As a baseline, a small business is one with less than 20 people. These businesses are generally owned and operated by independent owner(s) and are closely controlled by the owner(s). The main source of capital comes from the owner(s) and thus the main decision makers in all transactions that impact the business.  As a small sized organisations, this allows them to be nimble in their reactions to market demands and conditions. Their small size also allows them to adjust and adapt at a faster rate than their larger peers. At the same time, small businesses also suffer from challenges that medium sized and larger businesses are less susceptible to.

The main challenges include the lack of readily available financial resources and time and level of understanding to manage risks in a structured manner. Risk management is generally an afterthought that takes place post an event or incident and this is often too late to mitigate anything. However, events and incidents are lead and lag indicators, respectively, that provides valuable input into the risk management process.

So what’s the best approach?

A pragmatic and proactive risk management approach is recommended.  This can be a simple spreadsheet that captures the known risks within your business and within the industry. In addition, the initial risk identification should take into consideration any legal, regulatory and contractual exposures, technology changes and risks to your people (where applicable).

To ensure that risks are manageable in the longer term, the following is recommended:

Risk prioritisation

This will provide clarity in terms of which risks to focus on first which will then allow for financial and other resources to be allocated. A scaling system is mostly used in order to determine priority.

Determine the risk review interval

This will provide a proactive way to manage risks over time and this will also ensure that new and emerging risks are captured and managed.

Determine a threshold for accepting risks

There are a number of ways to do this.

Connect

With your peers to share and learn from their experience.

There are resources available for businesses through industry associations and government agencies that are able to provide further information and assistance.

Written by Jacqueline Ung, Senior Security Specialist

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