When it comes to creating a strategy for a business, there are various frameworks that can be used, from a basic SWOT analysis to a more comprehensive balanced scorecard. However, one thing that these frameworks have in common is that they don't take into account risk. Therefore, it is essential that companies take extra steps to incorporate risk into the planning process. To do this, they should set key performance indicators (KPIs) to measure results. The best KPIs provide clues about the levers that the company can use to improve them.
For instance, overall sales are not a good KPI, while sales by customer can help the company to identify areas of improvement. There are several areas that business owners can focus on to help manage the risks associated with running a business. By delving deeper into their business and industry, they can create a risk management plan that could save their company. One of the most important aspects of risk management is understanding the regulations and standards that apply to your industry. For example, XBRL International (eXtensible Business Reporting Language) is a global non-profit consortium that establishes open international standards for the preparation of digital business reports.
Knowing and understanding these regulations and standards can help businesses stay compliant and reduce their risk. In addition to understanding regulations and standards, businesses should also consider other factors such as potential threats from competitors, changes in customer preferences, and technological advances. By taking these factors into account, businesses can develop strategies to mitigate risks and capitalize on opportunities. Businesses should also consider the impact of external events on their operations. For example, natural disasters or political unrest can have an impact on supply chains or customer demand. By understanding these external events and their potential impact on operations, businesses can develop strategies to minimize disruption. Finally, businesses should also consider the impact of internal events on their operations.
This includes changes in personnel or processes that could affect operations. By understanding these internal events and their potential impact on operations, businesses can develop strategies to minimize disruption.