Today’s startups, regardless of their industry, are usually vulnerable to several threats and have to operate in a hyper-competitive and uncertain environment. Because of this, most of them fail. In fact, various studies have found that 90% of startups fail because they don’t plan for unforeseen events.
Startups face risks that arise from various business aspects—what will be the state of the economy in the future, what will be the customer preferences in the future, what strategies will competitors use in the future, is the firm’s technology effective, etc. Then there are cyber risks. In order for startups to properly manage these risks, they need a sound risk management strategy.
One vital tool for effective risk management is a risk register. Read on to discover the key components to include when building your startup’s risk register.
What Is a Risk Register?
A risk register is a risk management tool used to identify potential risks within a project or an organization. This process is geared towards identifying, analyzing, and mitigating risks before they cause bigger damage.
Also known as a risk register log, a risk register document is used to track potential risks within a project or organization. It also outlines details pertaining to the priority of a risk and the likelihood of it occurring.
A startup’s risk register shouldn’t be only capable of identifying and analyzing risks; rather, it should also be able to offer sound risk mitigation strategies so that, suppose the risk turns into a bigger threat, your team is ready with the right tools and is empowered to solve the problem.
Why Every Startup Needs a Risk Register
The main purpose of a risk register is to ensure you are aware of a problem before it occurs. It enables you to identify the threat, how it may impact your business, and how much it will cost. This way, if an issue occurs, your team will know what actions to take to remedy it before it escalates.
A risk register can also help you enforce accountability. The risk register requires you to appoint a risk owner for each risk. It also requires you to confirm that the risk owner can mitigate the risks they own according to the set guidelines. The risk owner will also need to communicate with the internal audit and compliance team to get a better understanding of where compliance and risk management activities intersect.
Another benefit of a risk register is that it will enable you to manage your risks strategically. A risk register will enable you to channel resources in areas with the highest risk so that you can better manage those high-priority risks.
Five Things to Include in a Risk Register
The essential components in a startup’s risk register include:
A risk register should outline all the potential risks an organization could face. To identify these risks, it’s important to engage everyone in brainstorming the potential risks. Each team member is responsible for a given task or department, so use their expertise to identify the risks that could be problematic to your business. Additionally, you should also involve stakeholders to ensure you capture their concerns and are tracking their risks too. Ensure you cover all risk categories that may impact your business.
Next, you should describe the risks you identified. Try to be as thorough as possible while keeping the description to the essentials of the risk. Ideally, a risk description should include a short, high-level overview of the risk and why the risk is a potential problem. The description should make it easy for your team members to understand the most vital information about each risk. If the description is too vague, your team may find it hard to determine whether a given risk is a real issue or not.
Risk Likelihood and Impact
Now, you need to determine how the potential risks can affect your business so that you can put in place measures to deal with them. You can either use qualitative or quantitative analysis to determine the impact of a risk. Your risk register should also estimate the likelihood of a particular risk. The likelihood of a risk can be classified as not likely, likely, or very likely. Classifying risks as such can help you identify which risks to tackle first and those that should wait.
Your risk register should outline your response plan to various risks. Creating an appropriate risk mitigation strategy will require that your team puts in maximum effort. A risk mitigation plan should include a step-by-step guide on reducing the risk, a brief description of the intended outcome, and how the plan will affect the impact. In the long run, your risk mitigation plan should be comprehensive without being overly excessive.
Risk Priority and Assigning Risk Owners
Every threat carries a different amount of risk. Some risks have a greater effect than others, and so it’s up to you to decide which risks to give a high priority and which ones to put off. Risks with the highest likelihood and potential for many areas should be prioritized for mitigation. In addition to prioritizing risk, your risk register should include an outline of how you’ve assigned risks to various risk owners. Ensure that the individuals to whom you assign risks can mitigate those risks.
Including the five elements outlined above in your risk strategy will ensure that you are better positioned to manage the potential threats your startup encounters.
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