When actress Angelia Jolie announced in an Op-Ed in the New York Times this week that she chose to undergo a double mastectomy as a way of reducing her chances of developing breast cancer, healthcare officials and cancer awareness advocates had plenty to say. But in an interview with NPR, one fellow breast cancer survivor commented that Jolie’s operation, in many ways, can be understood just as much in terms of risk management as it can in terms of healthcare.
As such, her choice to have surgery offers insight into how small-business owners can approach their risk management and insurance-purchasing decisions.
Risk Management: a Numbers Game
While it may seem callous to compare a potentially life-and-death medical decision with the kinds of risk management decisions business owners make every day, sole proprietors and owners of micro businesses understand that a single risk management decision can mean the difference between the survival and failure of their firm.
In Jolie’s case, the decision made sense from a numbers perspective: with a nearly 90 percent chance of developing breast cancer and a family history of early, cancer-related deaths, she saw the preventive surgery as a worthwhile investment in her future health.
Businesses that see similar numbers threatening the long-term viability of their firm can and should actively manage the risks they face. When managing those risks involves drastic measures (as in Jolie’s case), business owners have no better resource to help them than the numbers and statistics outlining their risk profile.
Data breaches provide a useful example. Research into data breach incidents shows that…
- The average cost of a data breach incident in 2012 was $194 per record, for an average of $5.5 million per organization per incident.
- 55% of small businesses will experience a data breach at some point in their operations.
- 53% of businesses affected by a data breach will be hit with more than one.
- In 2012, only 35% of businesses carried Cyber Liability Insurance, which protects against data breaches.
These numbers speak volumes: while the majority of small businesses will experience at least one data breach at some point, only about a third of them carry the insurance that will cover the costs associated with that breach. Even more troubling? Many prominent data breaches in recent years were attributed to data security failures at the most basic level: easily guessable passwords, passwords left unencrypted, and passwords that weren’t regularly changed.
Even if you think a Cyber Liability policy is beyond your financial means, you can easily (and inexpensively) implement effective data security measures that will dramatically decrease your chances of experiencing a data breach.
When to Take Drastic Risk Management Measures
So given the importance of making risk management decisions based on data, is there any analog to Jolie’s double-mastectomy decision for small-business risk management? Absolutely. Keep in mind, of course, that Angelina Jolie has a rare gene mutation that puts her at higher risk for developing breast cancer than the general population, and that her risk level was higher even than others with the gene mutation.
Your business might be in a similarly high-risk position if it…
- Is located in an area prone to hurricanes, flooding, earthquakes, fires, or other natural disasters.
- Relies heavily on a supply chain in an area of the world prone to natural disasters or political unrest that could prevent suppliers from delivering essential materials.
- Gets a large percentage of its business from one or two major clients.
- Operates within narrow financial margins or with little to no cash cushion.
- Collects and/or stores a lot of customer data.
While you can’t insure your business against all of these risks (for example, against not having many clients), you can take bold risk-management action to minimize the likelihood that any of your biggest risks will lead to a major loss. How? The process starts with taking the time to honestly evaluate where your business is vulnerable and what you can do to make it less so.
If, for example, you rely heavily on one or two major customers, you might want to devote more time to winning new customers or otherwise diversifying your revenue streams. If you’re in a flood-prone area, store valuable equipment as high as possible and ask your insurance provider about a flood rider to your Property Insurance policy.
The bottom line here is that, for most of the risks you face, you have a choice of whether or not to be blindsided by them. With careful attention to available data, you can prepare your business to successfully weather most of the events that have the potential to disrupt your business and drain your funds.