Creating a Risk & Contingency Strategy
If recent times have taught us anything, it’s how quickly our normal way of life can change! For businesses, the need to have spent some serious thought on risk analysis and contingency planning has never been more important. While it’s never possible to completely risk-proof your business, as navigating the extreme measures of the COVID-19 global lockdown have shown us, it is always worthwhile coming up with a plan to mitigate for risks that might derail our businesses in the future.
Risk Analysis
Risk analysis is the process of identifying and analyzing potential issues that could negatively impact businesses, in order to help them avoid or mitigate those risks.
A good first step to risk analysis is to start with a SWOT analysis. This process involves you identifying your businesses’ strengths, and weaknesses, as well as any opportunities and threats. Most people are good at identifying their strengths and weaknesses, and the opportunities available to them, but struggle a bit with threats! At the moment the biggest threat to businesses is the COVID-19 lockdown lasting longer, or alternatively being lifted and then re-imposed later in the year if we get a second spike. You can think of threats as external negative events or actions which you can’t prevent, but you can prepare for.
After your basic SWOT analysis, you might want to go for the more detailed approach of a PESTLE analysis. This stands for political, economic, social, technological, legal, and environmental. It can help you really dig down into the areas already identified in your SWOT analysis, and may also help you identify risks and threats that you hadn’t thought of initially.
Examples of political risk could be a change of government (leading to new priorities and therefore a lack of demand for certain services or products), and of economic risk could be a rise in corporation tax rates or changes in the dividends rules. For social risks, we could see a prolonged period of social distancing, which poses a risk for any business that relies on people getting together to use its product or service. Technological risks could be that now video conferencing is becoming the norm, you have a wider range of competitors from all over the world trying to steal your customers! And for legal and environmental risks, the climate crisis will bring in new legislation and working practices which may impact your business.
Contingency Planning
Contingency planning, or mitigation is the process by which you reduce the impact of risks that you can’t completely avoid. You should highlight the risks you have found during your analysis that can’t be avoided, and then make a plan for what you would do in that scenario. So for example, if there were to be an extended period of lockdown, or a second period of lockdown later in the year, how would you keep your business going during these times? If there were to be a rise in taxes (possibly to pay back all the Covid-19 spending!) what would you do to ensure that your business remained profitable.