A1 Identifying and Addressing Risk
Starting a new business comes with a range of risks due to the uncertain nature of starting a new venture in an unknown market and the range of challenges such as start-up costs, economic uncertainty, regulatory issues and balancing work and personal life.
Risks Facing a Business Enterprise
Strategic risks are those which threaten the business’ ability to meet their longer term aims and vision. They affect the decisions that owners and directors make at for the business overall. To effectively mitigate strategic risks, decision makers need to have a good view of the business and market a s whole, have good risk identification processes and be flexible to change.
Examples of strategic risks include market changes, competitor behaviour, reputation damage, regulatory changes and issues that come out of mergers and acquisitions.
Compliance risks are the uncertainties and outcomes of not adhering to laws and regulations. Mitigating compliance risks involves having a good awareness of the laws and regulations affecting the specific enterprise, implementing an audit process to ensure everything is regularly checked, ensuring staff are trained and aware of legal requirements and taking corrective action where necessary.
Examples of compliance risks include data, customer and employee protection laws, health and safety laws and specific industry regulations.
Operational risks are things that can go wrong in the day to day running of a business. Managers responsible for different areas need to have a good oversight of their area, systems in place to identify issues, contingency plans for when things go wrong and good staff training and development.
Examples of operational risks include equipment breakdowns, human error and supply chain issues.
Financial risks are the factors that can have an impact on a business’ financial performance and stability. Mitigating financial risks involves financial planning strategies to reduce the impact of individual issues. This may include diversification, insurance, scenario testing and ensuring robust financial controls are in place.
Examples of financial risk include non-payment by a customer or increased interest charges on a business loan
Addressing Risk
Conducting Market Research: Entrepreneurs can use their analytical skills to research the market thoroughly. This helps them predict trends, customer preferences, and competitor strategies, allowing them to make decisions and create strategies that meet market needs.
Building a Risk-Taking Culture: Entrepreneurs can create a company culture that supports smart risk-taking. This means encouraging an environment where employees embrace successes and failures and appreciate calculated risks, which are viewed as chances to learn and grow.
Networking: Entrepreneurs can succeed by building important relationships and finding new opportunities through networking skills. By attending events, using social media, and helping others, they can increase their visibility, create partnerships, and develop a supportive community that helps their businesses grow and innovate.
Fostering Innovation: By exploring new ideas, questioning traditional methods, and trying out fresh approaches to create products and services that appeal to customers, entrepreneurs can spark innovation and growth
Continuous Learning and Adaptation: Entrepreneurs should embrace continuous learning to stay competitive. This involves acquiring new knowledge and skills to adapt to changing circumstances, which is crucial for managing risks effectively.
Implementing Risk Assessment Frameworks: Successful entrepreneurs use structured strategies to identify, evaluate, and manage potential risks to be prepared for a range of unplanned situations. This helps them make better decisions, use resources wisely, and stay accountable. By doing so, they can protect their business, comply with regulations, and gain a competitive edge for long-term success.
BTEC Level 3 Enterprise and Entrepreneurship
