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BusinessPlan

CREATEABUSINESSPLANAS
THEFIRSTSTEPONYOURPATH
TOSUCCESS

Unit2:
RiskAnalysis

Roadmap&Objective

UnitNumber

UnitName

Unit10

RiskAnalysis

ObjectiveUnit10

Explainhowtoevaluatetherisksofthebusiness

Unit11

AssemblyandRevisionofBusinessPlanComponents

Unit 12

WriteandreviewExecutiveSummaryfrom
BusinessPlanProjects

Unit 13

WriteandreviewExecutiveSummaryfrom
BusinessPlanProjects

EightCommonPartsofa
GoodBusinessPlan
Businessplansmusthelpinvestorsunderstandandgainconfidenceon
howyouwillmeetyourcustomersneeds.
EightcommonpartsofagoodBusinessPlanare:
1.
2.
3.
4.
5.
6.
7.
8.

ExecutiveSummary
BusinessConcept
MarketAnalysis
ManagementTeam
MarketingPlan
FinancialPlan
OperationsandManagementPlan
RiskAnalysis
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Part8:RiskAnalysis
Aprofessionalbusinessplanshouldincludeadiscussionofbusinessrisks
andchallenges.Althougheverypossibleriskwillnotbeidentifiedand
addressed,thebusinessplanshoulddiscussthemostimportantones
andindicatehowmanagementwillmitigatetheirpotentialimpacton
businessoperations.

IdentificationofRisks
GeneralEnterpriseBusinessRisks
IndustrySpecificRisks
CompanySpecificRisks
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Preparingariskmanagement
planandbusinessimpactanalysis
Theprocessofidentifyingrisks,assessingrisksanddevelopingstrategies
tomanagerisksisknownasriskmanagement.Ariskmanagementplan
andabusinessimpactanalysisareimportantpartsofyourbusiness
continuityplan.Byunderstandingpotentialriskstoyourbusinessand
findingwaystominimisetheirimpacts,youwillhelpyourbusiness
recoverquicklyifanincidentoccurs.
Typesofriskvaryfrombusinesstobusiness,butpreparingarisk
managementplaninvolvesacommonprocess.Yourriskmanagement
planshoulddetailyourstrategyfordealingwithrisksspecifictoyour
business.

Preparingariskmanagement
planandbusinessimpactanalysis
It'simportanttoallocatesometime,budgetandresourcesforpreparinga
riskmanagementplanandabusinessimpactanalysis.Thiswillhelpyou
meetyourlegalobligationsforprovidingasafeworkplaceandcanreduce
thelikelihoodofanincidentnegativelyimpactingonyourbusiness.
Thisguideoutlinesthestepsinvolvedinpreparingariskmanagementplan
andabusinessimpactanalysisforyourbusiness.
Identifyriskstoyourbusiness

Identifyriskstoyourbusiness
Thefirststepinpreparingariskmanagementplanistoidentifypotentialrisks
toyourbusiness..
Thinkabouttypesofrisksforyourbusiness,ratherthanjustlookingatobvious
concerns(e.g.fire,theft,marketcompetition).
Assessingyourbusiness
Beforeyoubegin identifyingrisks,youneedtoassessyourbusiness.Thinkaboutyourcritical
businessactivities,includingyourkeyservices,resourcesandstaff,andthingsthatcould
affectthem,suchaspowerfailures,naturaldisasterandillness.Assessingyourbusinesswill
helpyouworkoutwhichaspectsyoucouldn'toperatewithout

Waysofidentifyingrisk
Onceyouhaveaclearpictureofyourbusiness,youcanbegintoidentifytherisks.Review
yourbusinessplanandthinkaboutwhatyoucouldn'tdowithout,andwhattypeofincidents
couldimpactontheseareas.Askyourself:
when,where,whyandhowareriskslikelytohappeninyourbusiness?
aretherisksinternalorexternal?
whomightbeinvolvedoraffectedifanincidenthappens?
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Identifyriskstoyourbusiness
Thefollowingaresomeusefultechniquesforidentifyingrisks.
Ask'whatif?'questions
Thoroughlyreviewyour businessplan andaskasmany'whatif?'questionsasyou
can.Askyourselfwhatif:
youlostpowersupply?
youhadnoaccesstotheinternet?
keydocuments weredestroyed?
yourpremiseswasdamagedoryouwereunabletoaccessit?
oneofyourbeststaffmembersquit?
your supplierswentoutofbusiness?
theareayourbusinessisinsufferedfroma naturaldisaster?
theservicesyouneed,suchasroadsandcommunications,wereclosed?

Identifyriskstoyourbusiness
Brainstorm Brainstormingwithdifferentpeople,suchasyouraccountant,financial
adviser,staff,suppliersandotherinterestedparties,willhelpyougetmanydifferent
perspectivesonriskstoyourbusiness.
Analyseotherevents Thinkaboutothereventsthathave,orcouldhave,affected
yourbusiness.Whatweretheoutcomesofthoseevents?Couldtheyhappenagain?
Thinkaboutwhatpossiblefutureeventscouldaffectyourbusiness.
Assessyourprocesses Useflowcharts,checklistsandinspectionstoassessyour
workprocesses.Identifyeachstepinyourprocessesandthinkabouttheassociated
risks.Askyourselfwhatcouldpreventeachstepfromhappeningandhowthatwould
affecttherestoftheprocess.
Considertheworstcasescenario Thinkingabouttheworstthingsthatcould
happentoyourbusinesscanhelpyoudealwithsmallerrisks.Theworstcase
scenariocouldbetheresultofseveralriskshappeningatonce.Forexample,
someonerunningarestaurantcouldlosepower,whichcouldthencausethefoodto
spoil.Iftherestaurantownerwasunawareofthepoweroutageorthechefdecided
toservethefoodanyway,customerscouldgetfoodpoisoningandtherestaurant
couldbeliableandsufferfromfinanciallossesandnegativepublicity.
Onceyou'veidentifiedrisksrelatingtoyourbusiness,you'llneedtoanalysetheir
likelihoodandconsequencesandthencomeupwithoptionsformanagingthem.
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Analyseandevaluatetheimpact
ofrisks
Analysingthelevelofrisk Toanalyserisks,youneedtoworkoutthelikelihood
ofithappening(frequencyorprobability)andtheconsequencesitwouldhave
(theimpact)oftherisksyouhaveidentified.Thisisreferredtoasthelevelof
risk,andcanbecalculatedusingthisformula:
levelofrisk=consequencexlikelihood
Levelofriskisoftendescribedaslow,medium,highorveryhigh.Itshouldbe
analysedinrelationtowhatyouarecurrentlydoingtocontrolit.Keepinmind
thatcontrolmeasuresdecreasethelevelofrisk,butdonotalwayseliminateit.

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Analyseandevaluatetheimpact
ofrisks
Ariskanalysiscanbedocumentedinamatrix,suchasthis:
Likelihood scale example
Level

Likelihood

Description

Verylikely

Happensmorethanonceayearinthisindustry

Likely

Happensaboutonceayearinthisindustry

Unlikely

Happensevery10yearsormoreinthisindustry

Veryunlikely

Hasonlyhappenedonceinthisindustry

Consequences scale example


Level

Consequence

Description

Severe

Financiallossesgreaterthan$50,000

High

Financiallossesbetween$10,000and$50,000

Moderate

Financiallossesbetween$1000and$10,000

Low

Financiallosseslessthan$1000
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Analyseandevaluatetheimpact
ofrisks
Evaluatingrisks
Onceyouhaveestablishedthelevelofrisk,youthenneedtocreatearatingtable
forevaluatingtherisk.Evaluatingariskmeansmakingadecisionaboutitsseverity
andwaystomanageit.
Forexample,youmaydecidethelikelihoodofafireis'unlikely'(ascoreof2)but
theconsequencesare'severe'(ascoreof4).Usingthetablesandformulaabove,a
firethereforehasariskratingof8(i.e.2x4=8).
Risk rating table example
Riskrating

Description

Action

1216

Severe

Needsimmediatecorrectiveaction

812

High

Needscorrectiveactionwithin1month

48

Moderate

Needscorrectiveactionwithin3months

14

Low

Doesnotcurrentlyrequirecorrectiveaction

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Analyseandevaluatetheimpact
ofrisks
Yourriskevaluationshouldconsider:
theimportanceoftheactivitytoyourbusiness
theamountofcontrolyouhaveovertherisk
potentiallossestoyourbusiness
anybenefitsoropportunitiespresentedbytherisk.

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Treatriskstoyourbusiness
Treatingrisksinvolvesworkingthroughoptionstodealwithunacceptablerisksto
yourbusiness.Someriskswillrequireimmediatetreatmentwhileotherscanbe
monitoredandtreatedlater.
Yourriskanalysisandevaluationwillhelpyouprioritisetherisksthatneedtobe
treated.Whenyouaredevelopingaplanfortreatingtherisks,considerthe:
methodoftreatment
peopleresponsiblefortreatment
costsinvolved
benefitsoftreatment
likelihoodofsuccess
waystomeasurethesuccessoftreatments.

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Treatriskstoyourbusiness
Avoidtherisk Ifit'spossible,youmaydecidenottoproceedwithanactivitythatislikelyto
generaterisk.Alternatively,youmaythinkofanotherwaytoreachthesameoutcomethat
doesn'tinvolvethesamerisks.Thiscouldinvolvechangingyourprocesses,equipmentor
materials.
Reducetherisk Youcanreduceariskby:
reducingthelikelihoodoftheriskhappening forexample,throughqualitycontrol
processes,auditing,compliancewithlegislation,stafftraining,regularmaintenanceora
changeinprocedures
reducingtheimpactiftheriskoccurs forexample,throughemergencyprocedures,
offsitedatabackup,minimisingexposuretosourcesofrisk,orusingpublicrelations.
Transfertherisk Youmaybeabletoshiftsomeoralloftheresponsibilityfortheriskto
anotherpartythroughinsurance,outsourcing,jointventuresorpartnerships.Youmayalsobe
abletotransferriskby:
crosstrainingstaffsothatmorethanonepersonknowshowtodoacertaintaskand
youdon'trisklosingessentialskillsorknowledgeifsomethinghappenstooneofyour
staffmembers
identifyingalternativesuppliersincaseyourusualsupplierisunabletodeliver
keepingoldequipment(afteritisreplaced)andpractisingdoingthingsmanuallyincase
yourcomputernetworksorotherequipmentcan'tbeused.
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Treatriskstoyourbusiness
Makesureyouhaveadequateinsurance
Speaktoyourinsurertofindoutifyouhavetherightinsurancecoverforyourbusiness.Be
suretoclarifywhetheryouarecoveredfortherisksyouhaveidentifiedinyourrisk
managementplan.Keepinmindthatinsurancepoliciesmayhavedifferentdefinitionsfor
certainincidents(e.g.flooding).
Youshouldalsocheckthatyou:
havecoverageforthelossofincomeyoucouldincurifcustomersaffectedbythecrisis
stoporderingyourproductorservice
haveappropriateinsurancetocoverotherrelatedissuessuchasonsiteinjuriestostaffor
visitors,orforlossofyourcustomers'goodsormaterials
havecoverageincaseyoursupplier/sareaffectedbyacrisisandcan'tdelivernecessary
suppliesforyourbusiness
aremeetingyour workers'compensationobligations incaseanyofyourstaffareinjuredin
acrisis.
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Treatriskstoyourbusiness
Accepttherisk
Youmayacceptariskifitcan'tbeavoided,reducedortransferred.Otherrisksmaybe
extremelyunlikelyandthereforetooimpracticalorexpensivetotreat.However,youwill
needtodevelopan incidentresponseplan anda recoveryplan tohelpyoudealwiththe
consequencesoftheriskifitoccurs.

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Reviewandupdateyourrisk
managementplan
Youwillneedtotest,evaluateandupdateyourriskmanagementplanregularlyasriskscan
changeasyourbusiness,yourindustryandtheenvironmentyouoperateinchange.Regularly
reviewingyourriskmanagementplanisessentialforidentifyingnewrisksandmonitoringthe
effectivenessofyourrisktreatmentstrategies.
Strategiesfortestingyourriskmanagementplan
Findoutabout strategiesfortesting,evaluatingandupdatingyourrisk
managementplan andyourbusinesscontinuityplan.
Businesscontinuity
Yourriskmanagementplanshouldbepartofabroader businesscontinuity
plan thatincludesstrategiesforrespondingtoandrecoveringfromincidentsif
theydohappen.Makingsureyourbusinesscontinuityplanisreliableandupto
datewillhelpyouresumeoperationsquicklyafteranincidentandreducethe
impacttoyourbusiness.
Whileyoumaybeabletopredictanddealwithalargenumberofpotentialrisks,
therewillbesomethatareunexpectedorimpossibletoplanfor.Preparing
an incidentresponseplan anda recoveryplan aspartofyouroverallbusiness
continuityplancanhelpyoudealwiththesesituationsiftheyhappen.
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Reviewandupdateyourrisk
managementplan
Ariskmanagementplanisthepreventionstepin
the prevention,preparedness,responseandrecovery(PPRR)
model ofbusinesscontinuityplanning.

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KeyTakeawaysFromThis
Module
Howto:
Identifyriskstoyourbusiness
Preparingariskmanagementplanandbusiness
impactanalysis
Analyseandevaluatetheimpactofrisks
Treatriskstoyourbusiness
Reviewandupdateyourriskmanagementplan

SourcesandCitations
SmallBusinessAdministration,BusinessPlanning,HowToPreparea
BusinessPlan
GaryCadenhead,NoLongerMoot
ShirleenGlasin,ProSidianConsulting,BuildingaBusinessPlan
Entrepreneur.com,SmallBusinessEncyclopedia,BusinessPlans
AllBusiness,AD&BCompany,10ReasonsWhyYouNeedaStrong
BusinessPlan
BusinessOwnersToolkit,TotalKnowHowforSmallBusinesses

BuildingaBusinessPlan

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