Risk Management Plans focus on continuity of business operations and impact analysis on future company plans or strategies. The costs and consequences range from minimal business interruptions to direct operational impact to disastrous impact. Risks can be tangible (quantitative and measurable) or intangible (reputation, trust, brand, etc.). The cost and impact of various risks may vary from department to department on business function and by division or region. 

Here are key questions to address in a risk management plan:

1. What direct and indirect risk does this new strategy, plan, initiative, project, relationship, channel or market entry pose?
2. What is the magnitude (severity) of the possible adverse consequences?
3. How vulnerable are we to these threats? Have we conducted a thorough business impact analysis?
4. What is the likelihood (probability) of occurrence of each adverse consequence?
5. Who will be responsible if these risks manifest themselves into reality?
6. What is our game plan for managing, mitigating and monitoring these risks?

All small companies will probably encounter financial or cash flow problems that trigger financial risks. Having the right systems and business processes in place so your business has reasonable visibility and the information available to make informed decisions can be of paramount importance. The size and complexity of a business will usually dictate the types of systems needed (e.g., business intelligence), but a process and reasonable system for analyzing information is needed even for a smaller and less complex enterprise.

Andrew J. Sherman is a partner in the Washington, DC, office of Jones Day, an adjunct professor in the MBA program at the University of Maryland and Georgetown University, and the author of 26 books on the legal and strategic aspects of business growth and capital formation.

Read more articles about financial analysis.

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