Entrepreneurial Risk Management: Minimizing Risks in Entrepreneurial Ventures

Risk management serves an important function in safeguarding and maintaining the firm, yet it is not measured in performance indicators.

Most of you must have heard of a horrific occurrence in Mumbai in which 15 people met with unfortunate and untimely death in a fire at a pub. The shocking results from the investigation revealed that this pub neither had implemented fire safety precautions nor did it have accessibility to emergency escapes. The police have filed charges against the pub's owners, who have been placed behind jail. Proprietors that had nothing to do with crime till date, just due to their sheer negligence, are now deemed criminals liable to go under trial with culpable homicide charges. Analysis reveals that they have not paid enough attention to important risks and their mitigation in the event that they become a reality. In a word, adequate consideration of prospective risks and management solutions would have prevented the current disaster.

There was another case of an entrepreneur who has been operating his firm extremely effectively and has established a good reputation in the field. He became enamoured with the concept of constructing an investment portfolio of properties that he thought would expand considerably faster than the cash flow from the firm. He funded the purchase of properties by obtaining loans, assuming that the firm would create enough profit to cover the debt and seeing no dangers.  However, due to a succession of events such as demonetisation and the implementation of GST, as well as industry-related problems, his projected cash flow from company plummeted. On the other side, he couldn't sell the homes right away. Borrowed loans became sticky, and pressure from banks and creditors mounted.  His primary company, which he and his family worked tirelessly to build over the years, has become troubled.  He did not consider the potential hazards to cash flow from internal and external causes before borrowing.

There have been several similar incidents in the entrepreneurial arena, such as the burning of industrial units, inventory catching fire in stores, enterprises going bankrupt owing to measures launched for noncompliance with rules, and so on. If you are operating a business, you are always vulnerable to risks of damages and hazards. Furthermore, the kinds of risks to which firms are exposed change over time.  In other words, each business's risk exposure is dynamic and ongoing.

What exactly is risk and what are its various categories?

A possibility of injury, peril, or risk. Alternatively, to put oneself at risk of damage. It also expresses the risk of a negative variation in the actual outcome from the predicted result.

There are several instances of risk in small company. It is important to evaluate hazards in 'areas' or 'categories' in order to identify these concerns. A company, for example, may experience financial risks, safety risks, reputation risks, or operational risks.

Deciphering Risk Management

Risk management is a deliberate approach to coping with possible loss or harm. It is a constant process of risk assessment using different methodologies and instruments.   

a) Consider what may go wrong.

b) Determine which hazards must be addressed.

c) Implement risk-management methods.

Advantages of Risk Management: 

A cultural change away from "firefighting" and "crisis management" and toward proactive decision making that addresses possible losses before they occur.

Anticipating risk and anticipating what can go wrong will become part of regular business.

It guarantees that risks are taken voluntarily, with full awareness, clear policies, and understanding, so that they can be monitored and reduced as needed.

Consequences of No Risk Management: 

The organization would lack a thorough understanding of the underlying risks in the company.

Decisions made without comprehensive information or enough awareness of underlying hazards may occasionally result in catastrophic difficulties (surprises) with no warning and no opportunity to address the problems.

Risk management adoption barriers among Indian Entrepreneurs

Risk management in any size firm refers to the systematic evaluation and planned response to hazards. Small company owners are, by definition, entrepreneurs, successful and hopeful entrepreneurs. They have a propensity to be self-assured as a result of their success in developing and directing the firm, and it is normal for small business owners to place risk management strategies at the bottom of their priority list.

Second, in a small business, every action is managed or controlled by the entrepreneur himself or in collaboration with other partners. They are plainly so preoccupied that they place less focus on events and activities that do not immediately contribute to performance indicators. They place a premium on efficiency and production.

Third, many Entrepreneurs' have created organizational procedures and structures that are not mature enough to enable workers and others to come up and address risk problems.

However, if the risk becomes a reality, the organization's owner will ultimately be responsible for the dangers.

Risk management is an unseen act

Many experts emphasize the necessity of risk management in guaranteeing the organization's long-term viability. Any long-standing organization's key to success is effective risk management.

The majority of workers in any organization, large or little, do not regard risk managers favourably as they are seen as obstructionists or bad speakers.

Risk managers have little impact on performance indicators. As a result, they are imperceptible. They rescue the company by admonishing employees and upgrading procedures and regulations to avert calamities. Because the true effect of risks is not felt due to their active involvement, their function is underappreciated in many organizations and sectors.

Solution for Entrepreneurs

The majority of Entrepreneurs cannot afford to establish a distinct risk management staff. However, in order to remain a viable organization, businesses must constantly update and embrace new practices. There are several options for reaping the advantages of the finest risk management practices.

One such option is to conduct internal audits at regular intervals via an independent specialized agency that has no other financial or social ties to workers or promoters. Internal audit will be a thorough tool for identifying hazards.

Second, all organizations must create a risk inventory, which will encourage them to design a solid risk mitigation strategy for their company. Risks to businesses are often specific to their industry segment and operating regions and it is always advisable that they secure the services of industry specialists to mitigate the same.

Conclusion

Comprehensive risk assessment and continual evaluation are critical to ensuring that company does not face adversity. Long-term sustainability and a joyful business journey are inextricably linked to strict risk management. Learn more at the Entrepreneur Training Program offered by Moris Media, the leading digital marketing agency in India.