Identifying and managing risk is something every business should do at least once every six months. Identifying risks is a moving goalpost that changes as the marketplace changes, patient health demographics change, new regulations pass, and new competition moves in down the street.
Carving out some time twice a year to sit down and target the top five or six risks your business might be facing down the road not only puts the control back into your hands, but makes your business more stable and valuable. When it comes to risk, I like to think about creating value in terms of earnings and multiples. If you want to create value in your business, you will either want to increase the earnings or increase the multiple. One of the best ways to increase the multiple of any business is to ‘de-risk’ it – ultimately making it more valuable.
There is a structure you can use to help you anticipate and mitigate risks. In addition to this, learning how to handle the inevitable events that will come out of left field from time to time is key to ensuring your business can survive virtually anything.
Identify Risk With These Two Questions
Often, the events that will catch us unawares are those we don’t see coming. When I want to identify risk with my dental practice, the first question I ask myself is, “What don’t I see?”
Our vulnerabilities are found in spots where we’ve made assumptions whether that’s from values we hold close, unchallenged thought processes, habits, unconscious biases, or anything else that might unconsciously guide the way we do business. You can stop here and make a list of the top five or six risks you think might be in this area.
The next question to ask yourself if you want to identify risk is, “If I was my competitor, what would I do to trip myself up?” In other words, if I was going to launch a dental practice across the street tomorrow, what would I do to beat the competition? How would I approach that? How would I compete?
I find that when I ask myself this, very quickly I start to see a picture that draws out the ugly bits, the unattractive parts of the business – and that’s where risk is.
These two questions – ‘what don’t I see?’ and ‘how would I compete with myself?’ – are designed to identify risks. You will likely find you have potential risks in a number of categories like personal risk, debt or leverage risks, legal risks, risks around competition and loss of business, risk of fraudulent activity, regulatory risks, and more.
Quantify Risks With A Risk Matrix
Now once we’ve established what our risks might be, it’s important to quantify them so we know which ones to target immediately and which ones are less urgent.
To do this, I use a risk matrix to plot the risks. The most important thing to determine is, “What’s the likelihood of that particular outcome? Is it likely or unlikely?”
You can also determine the cost associated with each risk. Should this happen, how much will it cost me? And when thinking of costs, you don’t just want to consider monetary risk, but other kinds of costs as well. It might be a time risk, a reputation or brand risk, or something else.
Finally, I will determine the degree of control I have over each risk. Is this something I can control or manage?
When I have the answers to these questions for each risk, I plot them on a risk matrix. Here you can determine the severity of each risk from severe to insignificant.
Once you’ve done all this work, congratulate yourself. You now have the clues you need to focus your energy and use risk mitigation strategies to reduce the cost of risk, reduce the likelihood of risk, and overall make your business a more stable, profitable enterprise.
Of course, it is important to keep in mind your tolerance for risk. If there is something that is going to keep you up at night with worry, it needs to be addressed. Everyone will have different thresholds for determining what is an acceptable risk versus what is an unacceptable risk. You need to figure out, “Can I live with the downside?”
“It’s really easy for you to feel knocked off your course. It doesn’t mean that you’re weak in any way. It just means that you’re human.” – Dr Jesse Green
Not All Risks Can Be Predicted
Sometimes, no matter what risk mitigation you have in place, something will knock you off course. Even the best laid plains of mice and men will go astray. Unfortunately, unless you have a glass ball, no one can predict the future or everything that might come your way.
However, being hit with an unexpected situation isn’t what matters. What matters is how you handle it. If this happens to you, don’t react from a place of emotion, seek outside counsel, and then make a decisive choice. Being thoughtful about your reaction to a negative situation can make all the difference.
When something happens to your business, it can be quite stressful. Make sure you are taking the time you need for self-care, whether that’s eating well, going to the gym, or making time to unwind with the family.
This is a very brief overview of risk identification and mitigation. Identifying potential risks, plotting them on a risk matrix, and then taking steps to reduce their impact is to safeguarding your business for the future. Good risk analysis and the right mitigation strategies are important for every business.