If you're a new or soon-to-be business owner, you need to familiarize yourself with compliance and risk management, which refer to a set of processes that can help protect your organization from financial, reputational, and legal damage or losses.
Just as crucial is to learn about the key areas of compliance and the stages of risk management. You also need to be aware of strategies that can help you comply and mitigate risks.
Failure to implement compliance best practices and effective risk management strategies can result in severe consequences. Think hefty fines, legal proceedings, and even operational shutdowns.
One example is non-compliance (knowing or willful violation) of the Toxic Substances Control Act (TSCA). According to the Environmental Protection Agency (EPA), a TSCA violation carries a maximum penalty of $1 million for corporations.
Avoid such disastrous consequences by adhering to standards and regulatory compliance tips.
What Does Compliance and Risk Management Mean?
Compliance and risk management are a set of strategic functions interrelated with each other and designed to protect organizations.
The term compliance refers to entities adhering to industry standards and external laws and regulations. Risk management, on the other hand, involves the identification, assessment, and mitigation of internal and external threats, including those that could result in non-compliance.
What Are the 5 Key Areas of Compliance?
The exact areas of compliance focus differ from one organization to another, but there are five basic ones. They include:
- Governance: Establishing corporate governance guidelines, including oversight and accountability, while fostering an overall culture of compliance
- Business risk assessment: Proactively identifying, analyzing, and mitigating financial, legal, and operational risks
- Policies: Implementing clear, written standards to guide leaders and employees
- Training: Having all employees undergo training and education to ensure they understand their obligations and the consequences of non-compliance
- Auditing: Tracking operations and monitoring employees to detect, investigate, and address gaps or violations in compliance
What Are the 5 Stages of Risk Management?
The five stages or steps of risk management encompass a continuous cycle that your organization can use to establish and address potential threats. They include:
- Identifying hazards and risks
- Analyzing the impact of each risk and its likelihood of occurring within your organization
- Developing and selecting control strategies
- Enforcing control strategies
- Monitoring each control strategy to assess its effectiveness
What Are Concrete Examples of Business Risks?
Business risks can be internal or external.
Internal risks can occur within your organization's boundaries and borders. Conversely, external risks are threats that originate from outside your organization.
Examples of Internal Risks
An example of internal risk is occupational hazard, as it can arise directly from the activities, environment, or processes of a workplace.
A specific example of an occupational hazard is a construction accident. Such incidents are not just common; they're also leading causes of on-the-job fatalities.
Indeed, a report published by the U.S. Bureau of Labor Statistics (BLS) in May 2025 noted that around one in five workplace deaths in 2023 happened in the construction industry. Of these fatalities, 38.5% were due to fall, slip, and trip accidents.
Chemical risks can also be internal hazards. They're dangerous because they can cause poisoning, toxicity, cancer, and death. Such incidents can occur due to non-compliance with their use, handling, storage, or disposal.
Examples of External Risks
External risks are usually unpredictable and out of your organization's control. They can take many forms, including:
- Extreme climate disasters
- Political changes
- Economic downturns
While you can't predict or control such external business risks, you can mitigate their impact on your organization.
What Are Specific Strategies to Help With Compliance and Risk Management?
Establishing a code of conduct and operational/safety procedures can help your organization in both compliance and risk management.
Such documents outline good behaviors and moral conduct that your organization expects from employees. At the same time, they define misconduct and its consequences (e.g., penalties or termination).
Encouraging reports from employees should also be a top priority. The feedback could be about potential safety risks, a co-worker's poor behavior, or misconduct.
Employee reporting policies also encourage a culture of compliance and safety. Furthermore, it gives workers a feeling that their leaders listen to them and value what they have to say.
Another vital strategy to help mitigate your organization's risks, whether preventable or uncontrollable, is working with insurance experts.
Insurance professionals can help with risk mitigation as they transfer financial liabilities to a reputable and reliable insurance carrier. They can tailor policies to your organization's specific needs, too.
Insurance pros, for instance, can create a policy that provides property, business premises, and cyber liability coverage.
Frequently Asked Questions
What Are the Consequences of Non-Compliance or Lack of Business Risk Mitigation?
Fines and penalties aside, businesses that fail to comply with standards, laws, and regulations or lack risk mitigation strategies can lose their operating licenses. Stakeholders (e.g., customers, partners, or suppliers) may also lose trust in them.
When stakeholder trust diminishes, businesses lose clients and money. Over time, this can lead to an organization losing its market share and failing eventually.
Do Some Businesses Face More Risk Than Others?
Yes. Some types of businesses face more risk than others due to factors like size, location, and industry.
Take construction firms, for example. Construction work is inherently risky, as workers in this industry face significant hazards, from slips, trips, and falls to electrocutions to getting struck by or caught between objects.
As Bon Secours Mercy Health points out, their chances of sustaining work-related injuries are 70% higher than those of workers in all other industries.
It's for this reason that construction firm owners must always emphasize and prioritize safety by adhering to OSHA (Occupational Safety and Health Administration) standards and providing rigorous training and education.
Leaders must also ensure all workers use proper personal protective equipment (PPE). Regular site inspections must also be mandatory.
Stay Compliant and Reduce Business Risks
As a business owner, compliance and risk management should always be among your top priorities, as they can make all the difference in your employees' health and safety. They can also impact stakeholder trust, and ultimately, your bottom line.
By ensuring you target the key areas of compliance and stages of risk management, you can minimize potential hazards and threats to your business.
Check out other informative business guides or the latest in current events by exploring more of our news platform.
This article was prepared by an independent contributor and helps us continue to deliver quality news and information.
/cloudfront-us-east-1.images.arcpublishing.com/cmg/XCUXZC2XYZHCRGNNGKFEX6U3LQ.png)
