Risk management
Identify, assess, treat
Risk is the possibility of loss or harm; uncertainty is unknown future conditions. Risk management identifies risks, assesses likelihood and impact, treats the significant ones and monitors results. A risk register lists each risk, its cause, likelihood, impact, owner and response. Treatment options are avoid, reduce, transfer, accept and, for positive risks, exploit or share. Insurance transfers some pure risks but not every business risk, and exclusions apply. Internal controls such as segregation of duties, authorisation limits, reconciliations and stock counts reduce fraud and error. Diversification, contingency planning, backup suppliers and business continuity measures build resilience.
Traps
Candidates often confuse risk with uncertainty, or assume insurance removes a risk rather than transferring its financial consequence. Not all risks are insurable. Ignoring low-likelihood, high-impact events is a common error. Another trap is treating risk management as a one-time list rather than a cycle of review. Opportunity risk, such as missing a market, also counts.
Worked example
A caterer scores food poisoning at likelihood 3 and impact 5, giving 15; equipment theft at likelihood 2 and impact 4, giving 8. The food risk is treated first through hygiene training, temperature records and supplier checks. Rule of thumb: rank by likelihood multiplied by impact, then choose the cheapest effective treatment, not simply the most familiar one.
Risk management, resilience and business growth
Resilience and deliberate growth
Resilience is the capacity to absorb shocks, adapt and continue. It includes financial buffers, diversified customers and suppliers, flexible skills, accurate records and contingency plans. Adaptability may require a pivot: changing the product, customer segment or channel while keeping the core value. Growth follows a life cycle from start-up through growth, maturity and renewal or exit. Ansoff's matrix describes market penetration, product development, market development and diversification. Organic growth uses internal resources; acquisition buys another business; franchising licenses a proven model. Growth requires systems, delegation and cash. Overtrading occurs when sales grow faster than working capital can support.
Traps
Growth is not the same as profitability. Revenue growth can consume cash through stock and credit. Diversification is riskier than deepening an existing market. Resilience is not stubbornness: it includes changing course. Do not assume more staff or bigger premises automatically improve profit.
Worked example
A bakery wins a large order requiring P40,000 of ingredients, paid 60 days later, while suppliers demand cash. Sales rise but the bank balance falls. The fix is a deposit, staged delivery, invoice discounting or a working-capital facility. Rule of thumb: growth must be funded; forecast cash before expanding.