Risk Analysis for Startups
Risks are unavoidable in every startup venture, and you cannot always anticipate all possible risks. The only way to face potential dangers is to prepare and reduce the harmful effects of adverse events. To effectively manage startup risks, you must take your assessment one step further. What you need is to conduct a risk analysis.
There are a lot of uncertainties when it comes to business ventures. The most effective way to protect your business, as well as your employees and customers, is to anticipate possible crises and create a risk management plan.
A tactical risk management plan follows a systematic process. The first step is to identify all risks and assess how they can affect the safety of the business. This step is crucial since it does not merely identify risks but label them according to their urgency. It is also in this step that you will administer strategic risk analysis.
What is Risk Analysis?
Everyone knows the demise of the RMS Titanic. On its maiden voyage, the “unsinkable” ship plunged to the bottom of the ocean. However, the tragedy would not occur if they did not succumb to the pressure of fierce competition. They could prevent it if they acknowledged the design flaw and anticipated all the worst possible events during the voyage. To put it simply, it could have been prevented if they conducted a thorough risk analysis.
In a business environment, risk analysis is a crucial process of evaluating the probable occurrence of any detrimental situation within an organization or a company. This process shows an estimate of the extent of the impact once the event occurs.
Risk Analysis Benefits
Every startup should always conduct a risk analysis before they make significant decisions. This is because startups are more exposed to potential risks. Here are a few reasons why you should not forego a startup risk analysis:
A lot of entrepreneurs may relate to this, but risks are usually based on gut feelings. Through a risk analysis, this gut feeling becomes quantitative information. It materializes the risk and, in turn, gives startups leaders a chance to plan suitable methods to decrease and mitigate possible impact to the organization.
Create a Strategic Risk Management Plan
Assessment and analysis are one of the primary steps in creating a risk management plan. The output will serve as the foundation and the leading information in creating a tactical strategy to decrease the impact of risks to the startup. If something goes wrong in the risk analysis stage, the succeeding steps could not be as practical as they should be.
When you pitch your business to investors and capitalists, one of the things that will enter their minds are multiple adverse situations that can significantly impact your business. Not only them but your employees would also think the same. With a tactical risk management plan, which is possible by a thorough analysis, you can be confident in pitching your product. At the same time, you assure your employees of the security of the business. When employees feel secure, company morale increases, which boosts productivity.
Risk Analysis vs. Assessment
Though intricately linked to each other, risk analysis and risk assessment are not the same.
In a nutshell, risk assessment is a system itself. This system includes risk-related processes such as identifying, evaluating, and reporting. Risk analysis, on the other hand, is a more specific process within the assessment phase. The analysis process focuses more on the quantification of the identified risks.
Comparing the two, the assessment is the general process of identifying external and internal risks, while the analysis is a step further from the former method. The latter combines the probability of the event to happen and its estimated impact.
There are two types of risk analysis approach: qualitative and quantitative. These two approaches are similarly practical depending on the situation and the type of risk identified. As a starter, a qualitative approach is more subjective, while the quantitative approach is more objective. It is in the business leader’s discretion on what they deem is the best analysis approach to use.
Qualitative Risk Analysis
A qualitative approach is assessing each project risk according to their characteristics. This approach does not deal with calculations, statistics, and numerical ratings. Instead, qualitative analysis requires a written definition of possible business hazards and an extensive evaluation of the extent of the impact. Then, countermeasures are recorded to react to when the occasion arises quickly.
A qualitative approach has three scaling categories in which the identified risks may fall under based on the severity of their impact: low, medium, and high. Examples of qualitative risk analysis approaches are the SWOT analysis and Cause and Effect diagrams.
Quantitative Risk Analysis
Another analysis approach that you should consider is the quantitative risk analysis. Under this approach is a more numerical estimate of the risk of the organization. The quantitative approach calculates the probabilities of project objectives.
Manage Risks with Full Scale
Risk analysis is an essential process in creating a risk management plan. Without a comprehensive report, business leaders cannot determine the most critical risks with high failure probability. Then, there is no strategic counter-plan. As a result, the business is not all set once the situation ensues.
Do not make your maiden voyage your last; conduct a thorough risk analysis for your startup to be ready for any possible risks. If software development is part of your risk management strategy, Full Scale can help you with that.
Full Scale is an offshore software development center offering development solutions for startups. Our CEOs, Matt DeCoursey and Matt Watson, have been helping a lot of businesses take the first step to scale up. As successful entrepreneurs, they acquired extensive knowledge in the art and science of entrepreneurship. They experienced a lot of challenges and faced many risks in all of their business ventures.
Start planning the future of your business and be ready for any challenges coming your way. Talk to us now and book a FREE consultation.