Life used to be simple. It was about survival, finding enough to eat and avoiding being eaten by a sabre-toothed tiger. Modern life is much more complicated, especially if you’re a builder and run a business. There’s a lot to think about and one of the most fundamental is how to minimise risk. This includes risk to your business, your customers, suppliers, the public, yourself and your family.
Unfortunately, most business owners don’t spend enough time really understanding their risk environment and putting in place strategies to manage, avoid or transfer that risk. This series of articles will help you do just that. This first article will set out a framework to understand the various areas of risk you face and help you ask the right questions to assess that risk.
Four Areas of Risk
- Property
- Liability
- Financial
- Personal/Family
Our experience over the last 10 years has shown that thinking about the risk you face in terms of these four boxes works well for most building professionals. In the next four articles we’ll cover each of these in more detail. Once you’ve identified all the various possible risks, these are evaluated against two criteria:
- the likelihood of it happening
- the cost if it did
In our experience, assessing risk in this way often takes the worry away from those people who are feeling it, and they become much more positive about their situation. This is because the risks they face are now a known quantity (not a heavy weight on their shoulders) and can be dealt with, whether this involves insurance, new processes or training or simply a decision to acknowledge the risk and do nothing.
Example
| Description of risk | Likelihood of it happening (1 = lowest, 5 = highest) |
Cost if it did happen (1 = lowest, 5 = highest) |
Total (multiply) |
| Legal dispute | 5 | 4 | 20 |
| Accidentally damaging client’s property | 4 | 4 | 16 |
| Injured at work | 4 | 4 | 16 |
| Car accident | 4 | 3 | 12 |
| Earthquake | 2 | 5 | 10 |
| Heart attack | 2 | 5 | 10 |
| Tools being stolen | 2 | 2 | 4 |
Your scores will differ and should be based on your own individual circumstances.
What to do
The above table is an example of how to approach assessing your own risk.
- Create a table for each of the four areas of risk, then list all the potential hazards that you can think of. It’s a good idea to do this with someone else, such as a business partner, spouse or even someone outside your business, like your accountant. They add a different perspective and can often see things that, because you’re so close to the business, you don’t.
- Use your own gut feel and experience to decide how likely to happen the particular hazard/event is and give it a score. Often thinking whether one risk is more or less likely than another helps choose a score.
- Next consider the possible cost to you if the particular event was to happen. Would it be something you could handle, or would it break the bank? Again, considering the cost of each event compared to the others helps decide which are the most costly.
- Multiply the two scores together. You then have a ranking of the risks you face, based on your own view of the likelihood of them happening and the cost to you if they did.
- Rank all the risks on that final score. Write next to each one what you are doing to avoid, reduce or transfer that particular risk, starting with the ones with the highest score and working down.
Questions to consider for each risk
- Are you providing training in the right areas
- Is your security adequate
- Do you have the right procedures in place
- What’s your plan B
- Are the right risks insured
By focusing on the risks with the highest score you’re prioritising the areas that will have the most impact on you and your business.
Everyone has their own tolerance for risk, what you might think is low risk may be medium or high risk for another. However, by approaching your risk in this way you’re able to prioritise and then deal with it in a way that is appropriate to your own situation.
The next article will focus specifically on property, which means the risk to buildings, vehicles, building sites and other material assets that can be lost or damaged.
Managing Risk in Your Business, Part Two – Property/Asset Risk