Managing Risk

Risk management is the decision-making process involving considerations of political, social, economic and engineering factors with relevant risk assessments relating to a potential hazard so as to develop, analyse and compare regulatory options and to select the optimal regulatory response for safety from that hazard.

Essentially risk management is the combination of three steps: risk evaluation; emission and exposure control; risk monitoring. Management can adopt a variety of positions when handling risk. These can range from doing nothing, to attempting to cover just about every possible calamity that could occur.

Following are some common ways of approaching risk management:

  • Set up risk reduction programs to reduce the possibility of property damage, loss and accidental injuries within your place of business.
  • Transfer your risk to insurance companies, especially fire and casualty.
  • Assign risk to third parties where possible. For example: a retailer who requests product liability coverage from the manufacturer.
  • Set aside as large a contingency fund as you can manage to cover potential losses.

It is also important to note what your risks are and the moment and what they might be in the future. If your business expands and you take on more employees or subcontractors you will need to have policy and procedure in place to reduce your exposure in relation to risks and accidents. There are different risk management templates that you can find on the internet to help you have an outline and idea of what you may need. You can also employ any number of consultancy firms in the market that only assess risk management. They specialize analysing and addressing your company and its possible risks and completing a risk management plan for your business. This can be quite costly, but in the long run for larger businesses, it can be an asset.

In previous lessons, we looked at the SWOT analysis. When dealing with strategies, the opportunities and threats should be dealt with in a way that can help you to take advantage of them. The factors contained in the SWOT analysis can also be analysed in terms of risk. When risks are identified, they should be ranked in order of likeliness. From this list, strategies can be identified to deal with them if and when they arise. The more carefully the risks are identifies, the better the strategies can be organised to deal with them. In other words, if you do not give thought to crisis management, you will not have a disaster recovery plan.

Risks are inevitable. The only change is that they vary from company to company. Following is a list of risks to consider. This is not exhaustive and all risks will not apply to all companies. It is just intended as a guide, and to provoke thought.

RISKS TO CONSIDER:

· Industry: What are your competitors dreaming up?

· Market: How is it changing? How will this affect your sales?

· Your product: Watch out for quality problems, cost overruns, declining demand.

· Sales: Poor sales cut profits; high sales squeeze capacity.

· R & D: Make sure that you do not pour money into a black hole.

· Quality assurance: Poor quality costs money at the production line.

· Quality control: poor quality control damages your reputation and sales.

· Resource constraints: watch for lack or excess of skills, facilities, materials…

· Productivity: poor productivity pushes up product costs.

· Capacity: excess capacity costs money. Capacity constraints cost sales.

· Inventory: not enough kills sales. Too much drains cash flow.

· Investment: insufficient investment in marketing, machinery, training, career development or research can leave you unable to compete.

· Information technology: are you prepared for system disasters? Corrupt back-up? Obsolete systems? Inadequate processing capability? Insufficient management information?

· Administrative blockages: the sheer volume of order – or cheque-processing can bring an unprepared business to its knees.

· Business management: poor management hurts morale and profits. Failure to notice external threats can leave you holding a bankruptcy notice.

· Corporate politics: infighting depletes energy, strangles efficiency and can seriously affect your company’s reputation if it reaches the outside world.

· Cash flow: not enough kills. Too much, poorly deployed, reduces return on investment.

· Interest rates: increases raise the cost of capital, reduce demand and damage profits.

· Exchange rates: changes affect the cost of inputs such as materials; can reduce the cost of imported competing products; can reduce your competitiveness overseas.

· Natural disasters: what would happen if flooding or an earthquake closed your computer centre or your supplier’s factory?

· Other Property centred: Theft, Vandalism, Burglary, Accidents(vehicles), swindles

· Personnel centred: Employee injury, death, Competition, Sabotage, Dishonesty

· Customer centred: Bad Debts, Product Liability, On premise injury.

· Supplier centred: Faulty goods, Discontinuing products, Changing products,

· Strikes, supplier bankruptcy, quality change.

· Community: Changing demographics, geographics, changing values and attitudes, needs and wants.

· Competition: Competing businesses in, or entering the market.

Article by Staff of ACS Distance Education

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[05/02/2012 14:45:18]