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Organisational Risks

01 Oct 2014

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

However, some serious 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 organisation itself. 

Risk mitigation and traditional risk management actions were often concentrated around immediate risks such as health and safety issues or providing adequate insurance cover, traditionally delegated to management. Now many organisations realise that the overview of this activity and in the final analysis, the responsibility for ensuring these and the many other risks are evaluated and mitigated, properly belongs to the Board, within its role to protect the organisation’s future and its ability to achieve its strategic vision.  

Risk Mitigation 

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

Senior management also should ensure detailed assessments are undertaken of the potential for new risks in proposed new ventures or expansions they promote especially away from the familiar areas where strong competitive advantages are held. Protecting these competitive advantages, which can be of greater value than any other aspect of the organisation, can be the reason for its continued success, is also a primary oversight responsibility of the Board. Any threat to them should be seen as a major risk to the organisation’s long term future.

From Board level policies, which usually cover the mitigation of major risks in detail and of other risks in general terms, senior management can develop management level policies to set the boundaries for activities involved in high or potential risk such exposure to fraud, loss of major critical contracts, or arrival of a dominant new competitor.

These management level policies put into effect the policies set by the Board and are crucial to ensuring an organisation has effective risk mitigation and management right through all levels of the organisation.

Major Risks 

Major risks for any enterprise often number a good handful and these can include: 

  • Loss of major contracts
  • Unexpected economic downturn
  • Loss of key people including key management
  • Loss of a major client
  • Unexpected competitor action causing loss of market share or role
  • Undesired major changes in government legislation

Inclusion in annual 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. Risk mitigation is now days seen as a major function and it is essential for the Board to have senior management’s total commitment to preparing for all identified risks in accordance with agreed priorities. As these can number thirty or so, this is obviously an ongoing task that should be re-evaluated at least annually.

Click on our solutions tab above for practical tutorials to come up to speed on the role of board members and the handling of some risks 

Eric Livingstone 

Tags: Business, Mature and Established Companies, New and Growing Businesses, Risk

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