Are you just setting up our own construction business? Maybe you’ve been in the building industry for a while and feel that, given the growth levels within the industry, now is the right time to strike out on your own.
Along with all the key considerations that come with setting up a construction company, from what your team will look like to how you’ll pay subcontractors, you’ll need to think carefully about the everyday issues too. One of these is risk management.
Running any type of business involves a level of risk. Risk management involves the strategies and processes you introduce to identify, assess, address and tackle the risks that have the potential to impact your business and the people you employ.
Here’s a look at how you can ensure you’re managing risk within your business.
What is risk?
Before you can tackle the risks to your business, it’s important to understand what risk is. There are types of risk that come up for businesses across a range of sectors. These include strategic risks; the risks around how compliant your company is; and financial risks.
To work out where the risks are in your own business, you need to look or any potential situations that can impact negatively. For example, if you lose a big client, you will face a financial risk as you will be relying on that income for your company’s cashflow.
You need to work out early on how much risk you’re willing to take. Sometimes, taking a step into risky situations can pay off, whereas others can be detrimental. Risk management is knowing where to draw that line and how to deal with things that arise. Here’s how to set up your risk management plan:
Review where there are potential risks to the business. Evaluate each area and work out where something negative could occur. Next, review previous issues, complaints or problems that have cropped up. You can then work out what external risks could influence your business.
Then you need to ask the ‘what if’ questions. This can help you deal with the worst-case scenarios.
Take each risk in turn ad work out how likely it is that it will occur and what would happen if it did occur. To work these two things out, ask how each is controlled. For example, your finances are controlled by your accountant. What if your accountant quit? You’d have to bring in a new one.
Take each risk in turn to establish what the controls are and what happens when these are removed.
To manage the risk, you have a few options. Ideally, you’ll avoid it by predicting what will happen and changing the process early on. If you can’t avoid it, try to work out how to minimise it by reducing the likelihood and consequence of it happening. Invest in a new machine or look for a new accountant if you hear your current one is leaving.
You might be better off transferring the risk elsewhere. Hire someone to fix the problem or get insurance to cover the costs.
Ultimately, you might need to just accept the risk and work out your next steps.
To know how to manage the risk best, it’s worth having a conversation with risk consultants. They can talk through what’s taking place and your next steps.
- Monitor and recap
Risk management plans aren’t static. To handle risk successfully, you need to continually monitor what you have planned and review it to make sure you’re ready for fresh issues that arise.
Once you have an idea of the risks your business could face, you can begin to tackle them before they become a full-blown issue.