“These factors don’t matter.” Those were the words I heard after presenting a contractor with a proven list of over 65 risk factors that can impact a construction company’s ability to make a profit. He gave the list back to me with 20 risk factors circled and told be the rest were of no consequence. If I hadn’t previously run a number of construction companies and closely observed hundreds more, his words may have cast doubt. But I knew better. Some risk factors are certainly less important than others, but they all can play a roll in causing business failure; even seemingly unimportant risk factors can interact with one another to have a large impact.
With respect to business, a risk factor is defined as an activity, practice or condition that can cause financial harm. Risk factors vary by industry. For example, smoking is a risk factor in the medical world, specifically related to the health of an individual. It does not apply to a construction business. Likewise, failing to have a job cost system in place is a risk factor related to a construction business, but certainly is not a risk to an individual. Risk factors are also different across businesses. A risk factor related to overstocking perishables in a restaurant due to poor inventory control does not apply to construction. Poor humidity control is a risk factor in a flower shop but not in a restaurant.
As you can imagine, there are many different types of risk factors and for the most part they are specific to an industry. Some risk factors are really important because the harm they can cause is great. Other risk factors are of lesser importance because the harm they can cause is not so great, thus having a smaller impact. To actually determine the impact a risk factor can have (its importance), takes years of case study. But suffice it to say, importance varies.