Successful IT risk management is all about identifying your biggest risks and minimizing them. It's no easy task. IT consultants are used to solving and preventing problems, but risk management is a little different. It's a bit like chess: the best players think a few moves in advance. You need to think about what could go wrong and how those problems could snowball.
For instance, an IT mistake could lead to a lawsuit, which in turn could lead to massive legal bill and a drain on your time. Add all the bills up, and pretty soon your business is feeling the budget crunch. You've got to make cuts in your workforce (which can reduce your efficiency and revenue), and in a worst-case scenario you might have to file for bankruptcy.
In other words, risk management is about seeing your individual risks and understanding how one risk affects another. Here are five technology and business risks that threaten your IT business every day:
- Client data breaches. We've seen countless news stories about data breaches, identity theft, and the massive cost that follows. After they're hacked, clients often sue their IT contractor for damages.
- Insufficient revenue. Simply put, your business needs money to function. If you lose clients and your revenue drops, you could be looking at bankruptcy.
- IT lawsuits. You can be sued for missed deadlines, disagreements with clients, faulty software, data migration errors, and other technical pitfalls. (Cyber liability lawsuits and others over the performance of your work are covered by Errors & Omissions Insurance.)
- Cash flow problems. Cash flow is a problem you probably didn't think much about until you started your business. Each month you might have roughly the same expenses, but your revenue fluctuates based on how much business you're doing. You must plan ahead and save money during good months in order to spend it in lean months.
- Day-to-day business liabilities. You can also be sued for things that have nothing to do with technology. If a customer slips on a wet floor in your office, you could face a general liability lawsuit.
IT Risk Management Strategy: How to Reduce Your Top Risks
- Client education and communication. Because data breaches are often caused by user errors, teach clients know how to use IT solutions securely. You should also consider teaching them basic data security practices (strong passwords, email security, etc.).
- Insurance for your clients. Do your clients need Cyber Liability Insurance (also called Data Breach Insurance) to cover their data risks? IT consultants can buy this insurance as well, but it typically makes more sense for clients. This policy insures against the costs of data breaches on the policyholder's network. If a client has this policy, their insurance provider pays for contacting their customers, credit monitoring, investigations, repairs, and other costs associated with a breach.
- Employee training. Training means more than just teaching your employees to handle IT tasks. Make sure there's a standard way to respond to client complaints and security concerns.
- Data security best practices. Keep up to date on data security news, maintain sufficient Technology Errors and Omissions Insurance, and adopt smart protocol for protecting client data. Remember that you can be sued for what you don't do. In a negligence lawsuit, clients will argue that you should have done more to protect their data.
- IT contracts. In our article "Essential Contracts for IT Businesses," we outline how business contracts can protect you from lawsuits. In your contracts, you should specify exactly what work you'll be doing. This helps you avoid miscommunications and validation errors.
- IT insurance. In addition to covering your lawsuit risks, IT business insurance offers cost certainty — a vital benefit for small businesses that have unpredictable revenue streams. Rather than having to pay for unexpected costs (like property damage, lawsuits, slip-and-fall accidents, client data breaches, etc.), you have a small annual insurance premium that you can budget for.
At insureon, we've helped tens of thousands of IT businesses find technology insurance that covers their lawsuit risk and protects their business from uncertainty. For a free quote on your business insurance, submit an online insurance application.