Risky Business

When people think of MBA-style “risk analysis” they are probably not thinking about the sale of unicorn horns,

Unicorn horn from BrooklynOwl, $15

Unicorn horn from BrooklynOwl, $15

or light switch covers. But why not? At Etsy New York our businesses may be small, but risks to them? Not small at all.

Vintage Barbie light switch, $12 from LuCraft

Vintage Barbie light switch, $12 from LuCraft

As owners of a fashion jewelry company, Wink and Flip undertook a major holiday market last season without performing a risk analysis on the business before the market started. This year we are working smarter. 

Risk analysis in business is a technique used to identify and assess factors that may jeopardize the success of a project, or achieving a goal.

The best way to go about organizing a risk analysis document for your business is to address one business area at a time, topics similar to those in a business plan. In large businesses, a computer system called a facilitated risk analysis process is often used. But small businesses can grab a basic entrepreneurship book and a pencil to create a list of the systems, applications and segments of their business, and then work on their own shoebox-style risk analysis. (See list of business systems below.)

After identifying and categorizing risks, a business owner must come up with controls that could lessen possible pain, or mitigate a risk, should it occur.

When friends of ours made thousands of ice cream sandwiches for a spectacular multi-day event in the summer, they were prepared for success. When the event was cancelled at the last minute, their risk analysis work saved them. With hundreds of ice cream sandwiches on their hands, they needed to find additional deep-freeze space to preserve their inventory. They’d already spoken to a restaurant with extra freezer space about renting that space if it should ever be necessary. When the event was cancelled, the owner made a phone call to the restaurant and his inventory was safely moved to the restaurant by the end of that day. Over the course of the season, the inventory was placed with wholesale accounts and supplied the business’s other events.

Risk analysis can help define preventive measures that might reduce the probability of risk factors from occurring.

Last September, when we went to purchase our favorite holiday bags – a white organza gift bag with silver stars on it – our usual supplier was sold out. This is the gift bag style we’ve used for ten years at the holidays, and now it was nowhere to be found. This year we will take a preventative measure to buy what we think we’ll need but do it in July, when organza bags are still available in all colors.

In order to avert possible negative effects on the company, risk analysis technique can also identify countermeasures to successfully deal with constraints when they develop. So what if we run out of our signature gift bags and it’s December 10th? By having the name of a reliable mail order vendor (much larger than the store where we purchase the bags), we can place an order for additional bags and have them mailed overnight to us.

We can also identify three to four other bag colors that work with our color scheme.

The decision as to what controls are needed to avert risk lies with the business owner. She identifies what risks exsist and what controls are needed along with a related action plan for how to put the safety controls into place. 

But owners often overlook the most important risk to the business: what if they themselves cannot run it due to accident or injury? Disability insurance for the business owner, or event insurance that covers the wages of the owner and the cost of inventory, should be investigated for any sizable craft business.

Can we ever eliminate all risk? Probably not, but some forethought can go a long way toward turning a crisis into …whew, a big save.

Susan  winkandflip

Here is a list of areas to be covered from a standard business plan outline created by BusinessTown.com LLC. It can be adapted to areas of concern for a risk analysis document.

  • Summary
  • Business concept
  • Current situation
  • Key success factors
  • Financial situation/needs
  • Vision
  • Vision statement
  • Milestones
  • Market analysis
  • The overall market
  • Changes in the market
  • Market segments
  • Target market and customers
  • Customer characteristics 
  • Customer needs
  • Customer buying decisions
  • Competitive analysis
  • Industry overview
  • Nature of competition
  • Changes in the industry
  • Primary competitors
  • Competitive products/services
  • Opportunities
  • Threats and risks
  • Strategy
  • Key competitive capabilities
  • Key competitive weaknesses
  • Strategy
  • Implementing strategy
  • Products/services
  • Product/service description
  • Positioning of products/services
  • Competitive evaluation of products/services
  • Future products/services
  • Marketing and sales
  • Marketing strategy
  • Sales tactics
  • Advertising
  • Promotions/incentives
  • Publicity
  • Trade shows
  • Operations
  • Key personnel
  • Organizational structure
  • Human resources plan
  • Product/service delivery
  • Customer service/support
  • Facilities
  • Creating the financials of the business plan
  • Assumptions and comments
  • Starting balance sheet
  • Profit-and-loss projection
  • Cash flow projection
  • Balance sheet projection
  • Ratios and analyses