It’s a Risky Business

Four friends wanted to start a business. After much discussion, they had hit upon the idea of launch a mail-order toys and games business. They were in the development stage of their business plan and wanted to be sure that they had been thorough with their planning. To reinforce this, they had just received a letter from a group of venture capitalists, agreeing to fund the start-up. It concluded its review of their plan by stating:

‘The business plan presents a credible opportunity for all involved and we are prepared to approve the funding request, Subject to a risk analysis being carried out on the project to start the business.’

The group were stunned – the funding that they had been hoping for was suddenly a reality. Just one thing stood in their way – that damned risk analysis process.

They started with identifying the key risk elements that could face the business during its start-up phase. They considered the process between the time that they received the funding and day one of trading. What could possibly go wrong? Lots of things.

They brainstormed the possibilities and recorded them. They then considered the effect that these would have on the project as a whole. The list they generated provided them with too much to do – they would spend all their time trying to prevent things going wrong and not enough making sure that the positive steps towards the business opening were happening. They needed to prioritise the events.

As importantly, what would happen, when they eventually occurred? Who would be responsible for each of them? On what basis could they rank each risk, in order to identify the most important risks for which they would develop mitigation and ownership?

They decided to use a table to show the risk event, the likelihood, the severity and by multiplying the two providing a risk priority number (RPN). This would then allow ranking of the risk elements. For the three highest ranked elements, the group then generate a mitigation process with someone in the group taking owner ship of that process. The result of their deliberations is shown in Table.

Risk Event

Likelihood

Severity

RPN . (rank)

Mitigation

Owner

Brochure not ready in time for business launch

4

8

32 (2)

Identify rapid printing firms; develop art work early

AL

Website not ready in time for Business launch

4

9

36 (1)

Website to be ready 3 weeks prior to launch or testing; use simple version first

SL

Banking facilities not ready

2

10

20 (5)

Initial stock not ready

3

8

24 (3)

Place orders immediately  or opening stock

LM

Group cannot agree on items to be sold

3

7

21 (4)

loss of one of group members

1

10

10 (6)

As can be seen, the top three risks were identified and mitigation tasks put in place to either prevent the risk event happening or to reduce its effect. The initials of the ‘owners’ of that risk in the last column show who has agreed to monitor that set of events and ensure that the mitigation is put into place before the project suffers from that event occurring.

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