Business risks

Risk management helps you make better business decisions. It involves reducing the things that could have a negative effect on your business. For example, the reducing the risk of injury by through safety procedures. You can also look for opportunities that could have a positive impact on your business.

Begin by finding out about risk management practices and how you can use them. You should also talk to others involved in your business (including your employees and customers) to decide on the best way to manage risk in your business.

Before you decide what to do, you’ll need to work out what your risks are and which ones are most urgent:

1. Identify – work out what risks your business could face.
2. Analyse – find the level of the risks and which ones are most urgent.
3. Evaluate – compare the risk against set risk criteria to decide what to do.

By managing risk, you can reduce the impact of unexpected events on your business.

Managing risk can also help you to:

• improve your relationships with customers, suppliers, employees and the community, by understanding and managing their expectations
• improve staff confidence in a safe work environment, through workplace health and safety (WHS) and workers’ compensation insurance
• keep your business open during natural or economic disasters, by having an emergency management plan
• reduce your compliance and insurance costs, by having a lower risk of damages.

You won't always have enough information or the resources to manage every risk. A good risk management plan will allow you to change your approach if it isn't working, or when unexpected risk happens.

You're required by law to manage some risks. For example, you must manage or reduce the risk of:

• accidents and injury by making your workplace safe under work health and safety (WHS) laws
• customer complaints by treating customers fairly under Australian Consumer Law
• injury or harm to employees by having workers' compensation insurance
• damaging the environment by meeting the environmental laws that apply to you.

It's a good idea to understand the different types of risks your business may face so you can recognise and plan ahead for them.

Risks can be:

• opportunity-based risk from choosing one option over other options (such as buying a new property)
• uncertainty-based risk from uncertain or unknown events (such as natural disasters or loss of suppliers)
• hazard-based risk from dangerous materials or actions (such as using hazardous chemicals or working at heights).

Opportunity-based risks

This type of risk comes from taking one opportunity over others. By deciding to commit your resources to one opportunity, you risk:

• missing a better opportunity
• getting unexpected result.

Opportunity-based risks for a business include moving a business to a different location, buying a new property, or selling a new product or service.

Uncertainty-based risks

This type of risk is from uncertainty around unknown or unexpected events. It’s hard to predict these events and the damage they can cause. It’s also hard to control the damage once they occur.

Examples of uncertainty-based risks include:

• damage by fire, flood or other natural disasters
• unexpected financial loss due to an economic downturn, or bankruptcy of other businesses that owe you money
• loss of important suppliers or customers
• decrease in market share because new competitors or products enter the market
• court action.

To reduce the impact of uncertain events on your business, you can do things like:

• develop an emergency management plan to reduce the damage to your business in an emergency
• keep a supplier database to help you manage your stock and equipment
• seek and use regular feedback from your customers and other people you deal with in your business
• check your business environment regularly for risks such as changes in trends and customer expectations
• seek expert advice every now and then to check the financial health of your business and to get advice on how to improve your business.

Hazard-based risks

These types of risks come from dangerous situations in the workplace.

Some common examples include:

• physical hazards caused by high noise levels, extreme weather or other environmental factors
• equipment hazards caused by faulty equipment or poor processes when using equipment such as machinery
• chemical hazards caused by improper storage or use of flammable, poisonous, toxic or carcinogenic chemicals
• biological hazards caused by viruses, bacteria, fungi or pests
• ergonomic hazards caused by poor workplace design, layout or equipment use
• psychological hazards caused by bullying and harassment, discrimination, heavy workload or mismatch of employee skills with job duties.