Half of all start-up businesses in the UK succeed and prosper. The other side of the coin is that half do not. Risk management is about applying a systematic approach to identifying and addressing all those factors that could either stop you achieving your objectives or, on the positive side, open up profitable opportunities.

Many owner/managers are already managing their risks automatically, as part of their obsession for their business which fills their waking hours. They are constantly thinking of what might derail their plans and taking steps to ensure it doesn't happen.

However, all businesses will reach a point at which a more systematic approach is needed. Businesses need to be able to explain their risks and how they are being addressed to their banks, investors, insurers and, increasingly, to customers. Within a growing company as well, there is a need for understanding, communication and documentation of risk, to ensure that all staff, not just the boss, are aware of the importance of risk and can contribute to the process.

A typical risk management process would include the following:

• Start with your business objectives: what are you trying to achieve?

• Take a methodical look at everything that might stop you achieving those objectives (risks). At the same time don't forget to include those things that could occur that would actually help you exceed your expectations (opportunities)

• Determine the relative priority of the risks/opportunities you have identified by thinking about the probability of each occurring and the impact it would have on your business if it did

• Think about the controls you already have in place (e.g. an insurance programme or IT security measures). How robust are they, and how far do they go to cover the risks you have identified?

• Decide what action you are going to take in respect of each risk. This will include insurance but could equally include actions such as producing a business continuity plan or a succession plan or identifying alternative suppliers. Remember that even if you have insurance in place there will be a time lag between claim and payout

• Produce a plan for implementing, monitoring and review and ensure everyone in the business is aware of what they need to do and why

For more information about the risk management process you can download a risk management standard from the IRM website here: http://www.theirm.org/publications/PUstandard.html.

For online training in risk management for SMEs see www.airmic.com/prorim-project/default.asp

Modern businesses are exposed to a complex range of risks. Some are obvious to managers, some are known but their potential impact is underestimated and others lie undetected through lack of awareness or because they are buried deep in the firm's administration.

If survival in business is to be assured, then exposing and controlling the risks must be worthwhile. The key to building reliable defences is to analyse, prioritise and then take action.

It must be recognised that insurance is only part of a complete approach to risk management. Here are just a few reasons why:

• Risk management benefits profitability. By identifying and tackling key issues, the efficiency of the business is improved

• An improved risk profile will enhance your negotiating position with insurers

• 80% of UK businesses that suffer a major fire, flood or hurricane go out of business within three years

• Fewer than 25% of businesses operate reliable personnel, safety or security procedures

• Fewer than 20% of businesses operate any organised form of IT security

Picture the scene, you are phoned at 3am to be told there is a major fire at your premises. As you arrive, your worst fears are confirmed. Your mind is racing with thoughts about what you will say to your staff and customers. What will happen tomorrow when people start arriving for work and customers start phoning in? But there are no phones to answer!

What should you do first? Where will we all go? What is going to happen? If you don't know what needs to happen, customers and staff will leave you and the business will go down fast.

For most businesses, advance planning for the possibility of a catastrophe will determine whether they can survive should the worst ever happen. A catastrophe may be something much less dramatic than a fire, but the key component that marks out the survivors is a business continuity plan. These UK statistics tell the story.

• 80% of businesses that suffer a major catastrophe, perhaps serious fire or weather damage, go out of business within three years

• 40% of businesses that suffer a critical IT failure go out of business within one year

But doesn't my insurance solve this problem?
Business interruption insurance is another essential because it provides a financial safety net while the business is recovering, but it takes more than cash to breathe life back into a business that has suffered a major setback. Recovery will depend on leadership, good organisation, survival of essential data, documents, perhaps the ability to maintain production or at least to tell your customers with confidence that you have secured the future. After the event is too late to discover what those plans needed to be.

For more information about the assistance that Russell Scanlan can give on risk management and business continuity planning, visit www.rsib.co.uk/Risk-Management_4_3_21_29_info.html

Small and medium-sized businesses account for the majority of UK enterprises and, like all businesses, they come up against a myriad of potential risks. In today's climate, growing and maintaining a healthy business is hard enough without the added worry of emerging threats and risks, whether they are connected to information technology such as IT security and hacking or extreme weather conditions.

AXA Insurance recently undertook some research among UK brokers. They were questioned about business risk and underinsurance because they dominate the distribution of commercial insurance among small and medium-sized businesses and as such have their fingertips firmly on the trends.

The research revealed that the majority of commercial insurance brokers believe their SME clients are underinsured. Around half believe they have insufficient insurance for their working premises and 55% claim that they need more cover for their motor fleets.

Over half (56%) of commercial brokers feel clients are underinsured with regard to loss of income protection occurring as a result of a disaster, such as a fire or theft of stock on a large scale. And 20% of brokers interviewed feel that businesses need to increase cover for their premises by between 11% and 20%, while one in four identified a need to increase insurance for loss of income by the same level.

To assess a business's vulnerability to the risks of underinsurance, trends by sector were reviewed, revealing that 41% of brokers feel retailers face the biggest problem, followed by 32% for manufacturing and 27% for wholesale.

It's concerning that very few SMEs review their risk management programmes and in some cases don't have any. This means they may not be aware of the many risks that they face or the chances of them happening, resulting in a huge problem of underinsurance, helping to explain why so many businesses don't recover from disasters.

Case study: Avoiding under-insurance
The owner of a country house hotel in Scotland proposed a building sum insured in the region of £4.5 million to AXA Insurance, based on information provided to them within the valuation report arranged by their mortgage lenders. An AXA risk control surveyor visited the property to make an assessment for insurance purposes.

After viewing the substantial stone built construction property, the surveyor presented a valuation report putting the level of underinsurance at about £3 million, with a sum insured of £7.5 million being a more representative rebuilding figure. Fortunately in this case the level of underinsurance was identified prior to a loss occurring.

This example demonstrates the importance of setting sums to be insured at their true value, to prevent the clause of average being applied in the event of a claim. The clause of average is a policy condition that requires the amount of a claim payment to be reduced proportionately if you have not insured your property for the full value or replacement cost. If the sum insured had not been increased and a total loss occurred, the extent of the insurer's liability could have been reduced by 40% - in proportion to the level of underinsurance - and a settlement of £2.7 million paid, rather than the £4.5 million policy limit.

AXA recommends SMEs appoint a firm of valuers with market presence and expertise in their field, who have proven experience in the undertaking of reinstatement valuations for insurance purposes, such as firms of building cost consultants who are members of the Royal Institute of Chartered Surveyors (MRICS), insurance professionals, property risk control surveyors and loss adjusters with relevant training and/or qualifications (i.e. MRICS, ACILA). For listed buildings or buildings requiring specialist building techniques, the valuer must be able to demonstrate the appropriate level of expertise/experience.

Ensure the firm has adequate levels of professional indemnity insurance, adequately covering their activities as building reinstatement valuers. Because risk management is the advice most sought after by SMEs, AXA provides related advice as part of its SME offering and it has recently developed a free guide to help them reduce the level of risk they are exposed to.

The Business 4 Tomorrow guide can be requested on CD or by downloading from AXA's small business website www.axa4business.co.uk. The most reputable insurers provide a range of insurance and risk management services to employers