Risk management is important for small business owners in order to help them identify risks that may prevent the business from growing and achieving its objectives, the likelihood of these risks materializing, and determining what levels of risk are acceptable and unacceptable. Some risks can present opportunities hence small business owners should always have the mindset of ‘how can I turn this around and make it work for me?’
Risk management strategies, therefore, require a dual emphasis on mitigating negative outcomes and maximizing positive outcomes. Stakeholder engagement is a crucial element of risk management in a business context. Stakeholders such as customers, suppliers, potential and existing funders or shareholders, employees, and regulators may have their own divergent perceptions of the risks facing the business and its ability to manage them successfully. These perceptions then influence stakeholders’ decision-making in the short and medium term, with significant ramifications for the business’ sustainability.
As a small business owner, one of the benefits of communicating with your key stakeholders includes reassuring them that you have a sound grasp of potential and existing risks and how to address them, creating confidence in you and your business. It also provides an opportunity to incorporate different viewpoints and take on board suggestions you may not have thought of your own, particularly useful in dealing with complex risk issues. Most importantly, stakeholder engagement ensures that you and your stakeholders are in agreement about the strategic direction of the business and its viability.
This could increase their loyalty and commitment to the business, making it easier to secure their assistance and cooperation in enforcing decisions (e.g. introducing operational changes). Small business owners should aim to provide regular progress reports on the development and implementation of your risk management plan, using appropriate media to reach the different stakeholder groups. An interesting aspect of risk management small business owners should be cognizant of is managing perceptions of using that business’ products or services.
The risks may be real in instances where there is a possibility the product is faulty; where the product poses a physical danger in certain environments or when used inappropriately; or where the service relies on other factors outside the small business’ control (e.g. reliable internet connectivity or electricity supply). Small business owners should be honest about the potential risks associated with using their products and services, giving customers frank and sufficiently detailed information to use the products and services as designed and avoid disappointment or threats to their physical well-being.
Failure to do so could result in reputational damage and lawsuits as customer perceptions of quality, safety and reliability are not matched by the reality they experience.