The impact of the economic crisis in Latvia has mostly posed a threat to the functioning of small- and medium-sized businesses, to say nothing of their very existence. In order to ensure a stable, long-term functioning of SMEs, it is crucial for their management to understand and develop the risk management system which would be integrated into their company’s development strategies. The development of the risk management system which is in the line with Latvia’s conditions and meets SMB’s requirements could also be used to increase company’s long-term competitiveness. Different approaches have been used to assess the risk management system: the static or „the old” and the dynamic or contemporary risk reduction concepts. As a result of the analysis, the authors have identified several differences in the above-mentioned concepts, as well as have outlined the advantages of the contemporary concepts, which SMEs could employ to ensure their stable and long-term functioning in a changing environment. The article proposes ways for the development of SME’s risk management system and its effective functioning, taking as a basis the COSO risk management model. The proposed system could be used to improve the ways businesses are run. At the end of the article, the authors have reviewed the previous analysis results and have arrived at important conclusions which SMBs have to take into account when developing their risk management system.