Business planning risk management is something that all businesses should have today. Businesses need to have good risk management policies in place. This is in order to reduce the possibility that a particular event will take place. In addition, minimise the potential threat or impact on any business performance. Risks to the business can be from activities within the business. They can also be from events that are external to your business operations.
Internal risks are those of which the business has some control over. Many of these risks can be mitigated or managed using internal controls. The objective of any internal control is to protect staff and resources. Thereby, encourage positive behaviour in the workplace. In addition, also support the efficient use of business resources. The controls will also ensure any financial information is accurate and reliable. Compliance with all financial and operational requirements and assist in achieving the business’s objectives.
Internal control activities generally include approvals and authorisations. Also, verifications and reconciliations. In addition, the review of performance and security of assets. Not forgetting any segregation of duties, and controls over any information systems. Control activities will assist in deterring, preventing or disclosing risk events within the business. The implementation of internal controls should be part of the continuous improvement program of every business.
Tips for improving internal controls
Good internal controls documented should cover the following:
- who is responsible for the implementation and monitoring of a control
- what the procedure for the control is
- why the control is required
- when the control is applicable
- how internal controls are communicated to staff
For effective internal controls, business owners and managers should ensure there is a framework. This is so the staff may easily communicate a breakdown of internal controls.
External risks to businesses are those events, which the business typically has no control over. Examples of these types of risks include increased competition. Financial risks such as unfavourable movements in interest rates. Exchange rates, availability of finance, economic risks, such as inflation, and natural disasters. Managing risk that the business has little control over. This is more about minimising the impact rather than mitigating the problem.
A business could consider many risk management strategies. That could reduce any unfavourable outcomes from any external events. What is important is that the business is aware of the potential risks. Risks associated with changing economic, environmental, social, financial, trading and other conditions. That is likely to influence business activities and are capable, willing and able to adapt to these changing conditions.
Tips for improving the management of external risk
The following tips can help a business improve the management of external risk:
- Business owners and managers should network with others in their industry. Including industry associations to stay abreast of changing economic and trading conditions.
- Ensure the business has appropriate insurance in place.
- Consider financial risk management strategies where the business is exposed to these risks.
- Have appropriate emergency, continuity and disaster recovery plans in place.
Regularly review all of the above to ensure that the strategies remain relevant to current conditions.