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Business Risk

01 Dec 2013

We are all constantly made aware of the fact that a substantial part of running any business is the time required on minimising and coping with risks. Some of our business risks we cope with on a day today basis with strategies built into our regular routines – supply issues, currency fluctuations, difficulties of attracting staff with a ‘lets do it’ attitude, just to name a few.

However, some serious business risks have a habit of just sneaking up on us, without fair warning or precedent, and these can be the most disastrous of all. Major catastrophes such a substantial fraud, fire, or serious accident to a staff member, can be very damaging to the future endeavours of the enterprise and indeed to the survival of the business itself.

Risk mitigation and traditional risk management actions are often concentrated around immediate risks, health and safety issues or providing adequate insurance cover, whereas many companies now realise that the overview of this activity and in the final analysis, the responsibility for ensuring the many other risks are evaluated is the responsibility of the Board of Directors whose major task is to ensure the long term survival and growth of the enterprise as well as the realisation of the company’s strategic vision.

Sticking to your Knitting

The fundamental mitigation strategy adopted by many business owners is to ‘stick to their knitting’, in other words, to concentrate their business growth in activities they have a full knowledge of especially in what can go wrong. Directors need to undertake and be that restraint for the blind open enthusiasm frequently found when new opportunities are being presented by people outside the enterprise or by champions within.

Directors are often faced with insisting on detailed assessment of the potential for new risks in proposed new ventures or expansions and may as a consequence, steer the direction for the business into more secure familiar areas where, for example, strong competitive advantages are held by the company. Any threat or risk to competitive advantages should be seen as a major threat and risk to the business’s future.

A principle function of Directors is to set Board level policies regarding the mitigation of major risks in detail, and of other risks in general terms. These policies set the boundaries for activities involved in high risk or potential risk such exposure to takeovers, loss of major critical customers, or arrival of a dominant new competitor.

Major Risks Major risks for any enterprise can include:

  • Loss of major contracts
  • Unexpected economic downturn
  • Loss of CEO or other key people
  • Major move in key foreign currency traded in
  • Loss of a major customer
  • Unexpected competitor action causing loss of major competitive advantage
  • Undesired major changes in government legislation adversely affecting company in major way

Inclusion in business plans of best and worst case scenarios can be a vital tool in forecasting the financial impact of major risks inherent in possible future events. Combined with strategic oversight by the Board, evaluating plans to manage or mitigate any major risks seen as possibly occurring in the planning period, can provide protection and potential solutions for a wide range of damaging events.

Risk mitigation is a major function for any Board and it is essential to have senior management’s total commitment to preparing for all identified risks, which can number over thirty, in accordance with agreed priorities. For the future of your business, it is worth evaluating your Board and management’s effectiveness in risk mitigation and management at least annually.

Don’t you agree?

Tags: Board Risks, Boards, Business

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