1st Rule of Risk Management: Don’t Underestimate Your Risks

Are you tired of being caught off guard by unexpected risks
in your business? Well, that’s what the first rule of risk management is all
about: “Not Underestimating Your Risks”.

I recently stumbled upon the “10 Rules of Risk
Management… In 10 Movie Quotes” by Thom Langford, and I couldn’t agree
more with what he had to say. So, I decided to take a deep dive into each rule,
focusing on the first one in this blog post.

The first rule of risk management can be summarized into five key points:

Even if you are small, you are still a target
Ensure you measure your risks effectively and accurately
Don’t think ‘unlikely’ events will not happen
Be realistic and avoid the ‘wild dog syndrome’
Plan for failure, these risks are REAL and not just reference point

1. Even if you are small, you are still a target

Don’t make the mistake of thinking that just because you’re not a big company or a high-profile individual, you’re not at risk. Cyber criminals and other bad actors are always on the lookout for vulnerable targets, and they don’t discriminate based on size.

Small businesses are often targeted by cybercriminals because they may have weaker security measures in place compared to larger corporations. In 2020, the FBI reported that cybercrime increased by 300% due to the COVID-19 pandemic. Small businesses were especially vulnerable because many had to quickly transition to remote work and may not have had the necessary cybersecurity infrastructure in place.

2. Ensure you measure your risks effectively and accurately

This means taking the time to identify and evaluate all potential risks, not just the obvious ones. It’s important to be thorough and to leave no stone unturned when it comes to risk management.

Let’s say you own a restaurant and you’re planning to expand your menu to include a new type of cuisine. Before you make any major changes, it’s important to conduct a risk assessment to identify any potential challenges. This could include things like supply chain disruptions, new equipment costs, or employee training needs.

3. Don’t think ‘unlikely’ events will not happen

The truth is, anything can happen at any time. It’s important to be prepared for all eventualities, no matter how unlikely they may seem.

In 2011, the Japanese Fukushima Daiichi nuclear power plant was hit by a tsunami, which caused a major nuclear disaster. This event was considered unlikely, but it had catastrophic consequences. It’s important to prepare for unlikely events by having backup plans and emergency procedures in place.

4. Be realistic and avoid the ‘wild dog syndrome’

This is when people tend to focus on the big, scary risks and ignore the smaller, more manageable ones. But in reality, it’s often the small risks that can lead to big problems if left unchecked.

When it comes to risk management, it’s important to prioritize risks based on their potential impact. For example, if you own a construction company, it’s important to focus on risks related to worker safety and equipment maintenance rather than worrying about the risk of a meteorite hitting your job site.

5. Plan for failure, these risks are REAL and not just reference point

These risks are not just reference points – they are real and can have serious consequences. That’s why it’s important to have contingency plans in place in case something does go wrong.

The COVID-19 pandemic was a prime example of how real and impactful risks can be. Many businesses were forced to shut down or pivot their operations due to the pandemic. Those who had contingency plans in place were able to adapt more quickly and effectively than those who did not.

Conclusion

Overall, the first rule of risk management is all about taking risks seriously and not underestimating the potential for something to go wrong. It’s about being proactive and prepared, rather than reactive and caught off guard. So, take the time to assess your risks and plan accordingly – it could mean the difference between success and failure.

Are you ready to take your business to the next level? Risk management is a crucial aspect of any successful business strategy, and understanding the key principles can help you mitigate potential losses and improve your bottom line.

Stay tuned for the next rule of Risk Management, as we continue our deep dive into the world of risk management and share valuable insights to help you navigate any challenges that come your way.

Bonus

If you’re eager to learn more about risk management and how it can benefit your business, why not book a complimentary 1:1 consultation with Rachael Mah? With over 30 years of experience in the field, Rachael is one of the leading risk management consultants in the industry. During your consultation, she can provide tailored advice to help you identify potential risks and develop effective strategies to mitigate them.

Don’t let risk hold you back – take the first step towards a successful future by booking your consultation with Rachael today!

Read about the Top 4 Benefits of Risk Management Consulting Services