I had the opportunity this week to briefly present to around 80 owners and managers of small to medium-sized businesses (SMEs). My task was to advise them of recent changes to HR-related legislation, and potential implications for their businesses/organisations. Perhaps unsurprisingly, it got me thinking about the Managing Risk component of the Success Through People Model©.
When it comes to running a successful SME, managing risk cannot be simply seem as a box to tick; it’s actually a cornerstone of sustainable growth and long-term success. Risks are an inherent part of any business, and how you identify, address, and mitigate those risks can determine whether your business thrives or falters. And that’s why the Managing Risk part of the STP Model is so critical—it empowers businesses to proactively safeguard their operations, people, and future.
Why Managing Risk Matters
Effective risk management is about more than compliance with laws and regulations; it’s about creating a resilient business that can adapt to challenges and seize opportunities. According to the Australian Small Business and Family Enterprise Ombudsman, poor risk management is a significant contributor to business failure, with 60% of small businesses folding within their first three years.
By actively managing risks, businesses can protect their people, intellectual property, and reputation while fostering a culture of accountability and ethical behaviour. This, in turn, leads to measurable improvements in employee engagement, productivity, and overall business performance.
The Key People-Related Risks Facing SMEs
Our particular focus is on people-related risks, and for most SMEs, the risks fall into two main categories:
- Legislative Risks: Ensuring compliance with the Fair Work Act, Work Health & Safety Act, Modern Awards and the National Employment Standards, for example.
- Broader Business Risks: These include succession planning, knowledge management, employee misconduct, and performance issues.
Neglecting these risks can, for example, result in significant financial penalties, lengthy and costly legal disputes, significant productivity losses and reputational damage, all of which can be challenging for a small business to recover from. As if that wasn’t enough, recent legislation to criminalise the intentional underpayment of employees has brought the potential of up to 10 years imprisonment into play!
So, what can we do to Effectively Manage People-Related Risks?
1. Conduct a Compliance Review
Start with a review of your business’s compliance with relevant legislation. For most Australian businesses, this includes the Fair Work Act, the Work Health and Safety Act, National Employment Standards, and Modern Awards. If your business lacks in-house expertise, consider engaging an external HR specialist or legal advisor. Our associated business HR Success also has a free Smallbiz HR Compliance Scorecard to get you started (check it out here).
2. Review Policies and Contracts
Ensure your employment contracts and workplace policies are up-to-date, compliant, and provide adequate protection for your business. Key areas to address include:
- Confidentiality and intellectual property provisions
- Managing instances of poor performance and/or misconduct
- Staff grievance handling
- Workplace bullying and harassment, plus Respect at Work
- Social media and the use of technology.
3. Train Your Leaders
Managers and supervisors play a pivotal role in managing employment-related risks. Equip them with training on their rights and responsibilities, particularly around recruitment, performance management, and grievance handling. This not only reduces risk but also builds leadership capacity within your team.
4. Develop Succession Plans
Poor succession planning can leave your business vulnerable if key roles suddenly become vacant. Identify critical roles and emerging talent within your team, and create a plan to ensure quick and smooth transitions if and when the need arises.
5. Implement Risk Management Systems
Establish clear policies, procedures, and systems to manage risks effectively. For example:
- Introduce a Code of Conduct to set behavioural expectations.
- Develop health and safety procedures tailored to your workplace.
- Create mechanisms for confidential reporting of misconduct, with clear processes for addressing issues promptly.
6. Adapt as You Grow
As your business evolves, so do the associated risks. Regularly review and update your people-related (and other) risk management strategies to reflect changes in your team, operations, and industry landscape.
The ROI of Managing Risk
Investing in risk management isn’t just about avoiding penalties—it delivers tangible benefits for your business. Research from Safe Work Australia highlights that businesses with strong health and safety practices see a 20% reduction in workplace injuries, leading to lower absenteeism and higher productivity. Similarly, a study by PwC Australia found that effective risk management practices are linked to improved employee engagement and retention, which are key drivers of profitability in SMEs.
Moreover, businesses that actively manage risks report higher levels of owner satisfaction. By reducing worries and headaches relating to the “people-stuff”, owners and managers can focus on growing the business and achieving their long-term goals.
A Final Word
Managing risk is not a one-time task; it’s an ongoing commitment to protecting your business, people, and future. By embedding risk management into your everyday operations, you’ll not only safeguard your business but also create a workplace culture that values accountability, resilience, and ethical behaviour.
The Success Through People Model provides a clear pathway for SMEs to optimise team performance and engagement. And remember, you don’t have to do it alone—there are resources, tools, and experts available to support you every step of the way.
Take the time to assess your current risk management practices and make a plan to address any gaps. The rewards—greater stability, improved performance, and peace of mind—are well worth the effort.
Sources:
- Australian Small Business and Family Enterprise Ombudsman (asbfeo.gov.au)
- Safe Work Australia (safeworkaustralia.gov.au)
- PwC Australia, Workplace Risk Management and Business Outcomes Report