SSo far in this series we have defined what risk is; We have outlined the importance of effective risk management and discussed the types of risk and the three components of risk management. We’ve also included discussions about the specific things you should be doing to ensure your business is and remains vigilant about the risks it faces and that appropriate actions are taken to only consciously avoid, eliminate risks , mitigate or accept when appropriate. We will end this series with some more issues and countermeasures that you should know about.
• IT systems: With the growing importance of information technology in business, it is important that you take specific measures to protect your IT assets and secure your information. Make regular backups and make sure you have at least one offsite backup.
• Customers: It’s important that you have conscious measures in place to protect your business from the risks that customers might expose you to. For example, you could be put out of business if you rely solely on one or a few customers. Customer and product diversification could protect you against this. Similarly, you can work to reduce the likelihood of disputes with your customers by having very clear, detailed, and contractual agreements in advance.
• Credit risk management: Some companies provide credit to their customers for various legitimate and commercial reasons. This can become a big problem if you don’t have pragmatic policies that minimize your exposure and protect you. But just having good guidelines is not enough. In addition, you need an enforcement will that makes it clear to the customer that your credit guidelines are alive and binding.
• Offerer: As with customers, you should manage your supplier risk by sourcing your consumables from an appropriate number of suppliers. However, you should be professional and honest in not revealing the confidential aspects of any relationship. Bind your suppliers to long-term contracts where appropriate and sensible.
• Rosters: Have service plans ready for regular maintenance of your office and business equipment. This is to reduce or eliminate the risk of failures. Sometimes it is necessary to include redundant equipment at critical points in the office or facility to eliminate the risk of failure.
• Understand risk taking: Different people have different risk affinities. Make sure you and your team can balance your collective risk appetites. This is important to ensure your business is neither too risk prone nor too risk averse. It is always important to find an optimal balance that on the one hand does not expose you to unnecessarily avoidable risks and on the other hand does not prevent you from taking advantage of opportunities.
• Compliance with legal regulations: We have addressed the issue of regulatory compliance in the past. Regulatory authorities have the legal power to take various types of action against you personally or your business. You could be prosecuted and your company sealed for omissions or violations. You should be aware of all the regulations that affect you and your business and make sure you always comply with them. Establish a monitoring system to ensure compliance. Your lawyers, accountants, environmental specialists, etc. can help you get and stay on the right side of the law.
• Natural Disasters: Natural disasters are real and can cause major damage or even wipe out a business. Your location will dictate this to some extent and you should be aware and take appropriate action to eliminate or minimize the damage they can cause.
• Political risks: The level of our political development, our economy and the nature of our businesses can expose us to political risk. This is especially true for those doing business with the government. When elections are coming up, this can be especially important. Be aware of the political risks you face at any given time and take steps to mitigate them.
• Health and Safety Risks: Many businesses in our communities are unaware of the health and safety issues that can pose various risks to their employees, customers, visitors and the community in which they operate. Does your company process hazardous chemicals and discharge toxic waste water? Ensure that all required regulations on these issues are met and introduce additional ones as necessary.
• Call: I find it sad and deplorable how many business people around us don’t seem to care about the reputation of their business and theirs as individuals. This harms us all, as customers, business owners and society as a whole. Societies thrive when individuals and businesses are trusted and do what they should. Only promise what you can do, and always do what you promise, even if it involves other unexpected costs to you. You can of course renegotiate if you have good reasons to do so. But even that must be done with honor and respect. The cost of restoring damaged reputation is always greater than the temporary “benefit” that originally caused the damage.
• Understand the lifecycle of your business: The life cycle stage of a company often determines the risks that a company faces. A start-up may face tough liquidity issues, market acceptance challenges, etc. A fast-growing business may also face overstretched resources, while a mature business may have indifferent and even careless employees whose actions or inactions can cost the business dearly. Understand where you are and what risks you may be facing now and perhaps in the future.
Managing risk is one of the key tasks that you must perform conscientiously and competently in order to have a good chance of being successful in business. It is about only taking risks knowingly and intelligently and avoiding or mitigating risks that should not be taken in whole or in part. Next week we will record the Business Performance Review.