Risk management strategies can enable small business owners, including farmers, to survive and succeed in spite of unexpected events. The risk matrix is an effective educational tool to illustrate the importance of risk management strategies. It is easy to use, easy to explain, and effective at promoting audience participation during risk management programs.

Introduction

Small business owners, including farmers, face substantial risks. One of the goals of Extension is to provide education on risk management strategies that enables small businesses to survive and succeed in spite of unexpected events. That said, one challenge in any risk management educational program is to motivate small business owners to invest the necessary time and effort to develop risk management strategies. For example, succession or estate planning is necessary to protect the family business, and the development of a succession plan can take years.

This article shares an effective tool, the risk matrix, to illustrate the importance of risk management strategies as part of contingency planning (Marshall & Alexander, 2006). The risk matrix is easy to use, easy to explain to workshop participants, and effective at promoting audience participation.

Using the Risk Matrix

When using the risk matrix, participants are asked to think of the risks their businesses face and list these events on Table 1. For each of these events, the participants are then asked to evaluate the probability and the consequence of the event on a scale of 1 to 10, where 1 is low and 10 is high. The consequence of the event can be thought of both in terms of severity and cost to the business. For example, in event 1, the owner is in a car accident that prevents him or her from fulfilling his or her normal duties for a period of 6 weeks. Participants in our workshops tend to rate the probability of a car accident at between 2 and 3, with the consequence of the owner being unable to fulfill his or her duties for 6 weeks rated at 8. Once the participants have rated the probability and consequence of event 1, the presenter can place event 1 on the risk matrix shown in Figure 1.

Table 1.

Handout for Risk Assessment: What Risks Does Your Enterprise Face?

Rate the probability and consequence (severity, cost) of each event on a 1-10 scale (1=Low, 10=High).