Managing risk

How to manage risks

There are four ways of dealing with, or managing, each risk that you have identified. You can:

• accept it
• transfer it
• reduce it
• eliminate it

For example, you may decide to accept a risk because the cost of eliminating it completely is too high. You might decide to transfer the risk, which is typically done with insurance. Or you may be able to reduce the risk by introducing new safety measures or eliminate it completely by changing the way you produce your product.

When you have evaluated and agreed on the actions and procedures to reduce the risk, these measures need to be put in place.

Risk management is not a one-off exercise. Continuous monitoring and reviewing are crucial for the success of your risk management approach. Such monitoring ensures that risks have been correctly identified and assessed and appropriate controls put in place. It is also a way to learn from experience and make improvements to your risk management approach.

All of this can be formalised in a risk management policy, setting out your business' approach to and appetite for risk and its approach to risk management. Risk management will be even more effective if you clearly assign responsibility for it to chosen employees. It is also a good idea to get commitment to risk management at the board level.

Good risk management can improve the quality and returns of your business.

You can download a guide to risk management for SMEs from the Institute of Chartered Accountants in England & Wales (ICAEW) website (PDF) - Opens in a new window.

Subjects covered in this guide

• Introduction
• The risk management process
• The types of risk your business faces
• Strategic and compliance risks
• Financial and operational risks
• How to evaluate risks
• Use preventative measures for business continuity
• How to manage risks
• Choose the right insurance to protect against losses
• Here's how risk assessment helped my business

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