Growing a Small Business by Mitigating Risks

January 31, 2017 Andrew Larsen

Recently, Apple, Inc. was fined $2 million for being non-compliant with the Fair Labor Standards Act (FLSA) by not providing their retail workers in California with timely meal breaks. In retrospect, if Apple had implemented a set of solutions and processes to monitor meal breaks, they would have mitigated the risk of being non-compliant with the FLSA.

Growth Invites Risk
Since starting and growing a business inherently has risks, business leaders need the right people, processes, and systems in place to mitigate it, or the chances of experiencing something similar to Apple is greater. Ernst & Young (EY), a global finance resource firm, gives three kinds of risks a business faces:

Strategic Risk
Risks that must be accepted as they offer positive benefits.

Preventable Risk
Risks that should be avoided or mitigated as they offer negative impacts.

External Risk 
Risks that cannot be controlled, offering negative impacts and/or positive benefits.

A situation that would require taking a strategic risk is hiring a new employee. The employee could prove beneficial to the company, but the risk is that the employee will leave and cost the company more in the long run.

An example of a preventable risk is being compliant with federal, state, and local laws. Rarely do business leaders have control over what laws are passed and how they are enforced, but the consequences of being non-compliant can be avoided if a business structures their processes to match the law’s requirements.

External risks are things which are far and beyond human control such as opening an office in an area which known to have frequent natural occurring events such as tornados, floods or earthquakes. Such events can never keep a business completely risk-free.

Regardless, business leaders should seek to mitigate risk to avoid unwanted negative consequences like unexpected fines and the hassles of legal proceedings, thereby increasing the chances of company success.

Four-Step Process
Since labor laws and company policies are always in a state of flux, so too is risk. Each day holds new circumstances that can threaten growth. The MITRE Corporation, a non-profit company that operates multiple federally funded research and development centers, gives a four-step approach to mitigating risk.

1. Identify Risk: This is where businesses need to notice risks in the workplace. They need to categorize that risk into whether or not it is strategic, preventable, or external. To some extent, this step will require a lot of research, but since every outcome is impossible to foresee, it is vital for a business to have access to the right solution to aid in identifying risk.

2. Impact Assessment: What are the costs of this project? How long will it take to implement? Here is where businesses take an inventory of the impact an action may have on the company. Ultimately, business leaders should recognize if there are any potential consequences that would prove fatal to their business.

3. Prioritization Analysis: Ranking each consequence on a scale of highest priority to lowest, can help business leaders address issues that arise in the most appropriate manner.

4. Implement Processes and Solutions: With risks identified, assessed, and analyzed, businesses can incorporate processes and technology to mitigate the chances of a negative impact occurring.

With so many changes in our labor laws occurring at the federal, state and local level, it is important that businesses do their best to mitigate risks. The best way to do this is by having right people, processes, and solutions in place to catch the problems before they turn into costly penalties.

About the Author

Andrew Larsen

Andrew is a marketing Communications Specialist for Zuman, the one solution for HR, payroll, and benefits administration that supports growing small to midsize businesses.

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