When it comes to disasters, it isn't just floods and fires that can befall a business. Cash flow drying up, key personnel leaving, a disruption on the supply chain, a commodity becoming more expensive, a scandal—any of those can become a serious problem for a business, especially if you've never experienced this type of stress before. That's why risk management should be on the minds of every business owner in the world.
Greg Githens is an executive and leadership coach in Lakewood Ranch, Florida, and the author of How to Think Strategically. According to Githens, a good risk management plan analyzes risk. It doesn't necessarily avoid or shy away from it.
“Risk is a neutral concept and is frequently confused with threats. Risks can also be opportunities," Githens says.
Often when we talk about a risk management plan, we're thinking about threats and minimizing them. But Githens makes a good point. A business can be so risk-averse that it never takes any chances, and that can be risky.
Take advantage of the slow season to look for risk management solutions. If you really look at potential trouble spots for a business at every angle, there are countless ways to enhance risk management.
But I'm going to focus on 4 ways to deal with risk.
1. Think about business continuity.
You'll want to create a risk management plan so strong that your business can withstand whatever threat that emerges. So that means your risk management strategy better include a way to have access to funds, says Donna Childs, who owns Prisere LLC, a Warwick, Rhode Island-based company that consults businesses on disaster prevention. She is also the author of the book, Prepare for the Worst, Plan for the Best.
Childs got the idea for the book after September 11—she was in the World Trade Center when it was hit, and made it out before the towers fell. She ended up losing her home, which was near the Towers and got damaged after they fell.
Her business, fortunately, was well insured, and even though her office building was without essential services for quite awhile, she was able to keep her business up and running.
You don't need a terrorist attack or a natural disaster to threaten your business, Childs points out.
“Consider, for example, the power outage that recently left part of Manhattan in the dark," she says. “For Manhattan residents and tourists, being unable to dine out during the blackout was an inconvenience. But for businesses in the food-service sector, like grocers and restaurants, a short power outage can cause $25,000 in spoilage losses."
If something like that happened to your business, would it be a bump in the road, or the end of the road? That's the question your risk management plan needs to answer—quickly. Start thinking about lines of credit, available credit on business credit cards and whether you have an emergency fund.
2. Update your business risk management plan regularly.
New threats appear all the time, so it helps to assess your plan often.
“I do mine quarterly, to keep up with new and emerging threats, like cyber risks or threats arising from employees coming into contact with unvaccinated people, for example," Childs says.
Much like the fire department... businesses need to train continuously for challenging situations that could unfold.
—David Gross, founder and managing director, Strategic Value Partners
You may not need to finesse your risk management improvement plan quarterly. Maybe once a year is adequate, maybe once a month is ideal. It all depends on how much potential danger your business deals with—and how risky it would be to have an outdated risk management plan.
3. Make sure everybody is involved in forming a risk management game plan.
This is important, says David Gross, founder and managing director of Strategic Value Partners, a management consultancy in Frisco, Texas. Gross, at SVP and when he was a consultant at the famed Bain & Company, has worked with designed and executing dozens of operating and business plans, often in complex industries such as aerospace and defense, automotive and healthcare, among others.
The larger your organization, the more people you want involved in formulating your plan, Gross says. Try not to foist off a risk management project onto one or two people—especially if you have a large business.
“Involve the entire organization, or at least a significant portion of the organization, with group meetings, surveys and avenues for providing anonymous suggestions," Gross says.
4. Test your risk management solutions.
Sometimes businesses develop wonderful plans, but fail to test them and see if they will work, Gross says.
“Much like the fire department... businesses need to train continuously for challenging situations that could unfold," Gross says.
That's right—it isn't good enough to test it once. You need to do it regularly. Your risk management ideas may look good on paper, but when you actually go through the motions of testing it out, perhaps it will fall apart. You need to know that.
And the test should be serious.
“For example, a healthcare or retail company worried about the risk of cyber thieves stealing credit card information might hire an IT firm to try and penetrate the retailer's systems," Gross says.
Granted, not every business is going to need to test a risk management plan continuously. If you're a small-business owner, you may just need to update your insurance once a year, make sure you have a healthy line of business credit and available business credit, make sure your list of emergency contacts is still up to date and then call it a day.
But Gross's point is spot-on. Some companies will need to test out their plans regularly, depending what types of disasters you're susceptible to. You can't set up a plan once and never think about it again.
That's the whole point of a good risk management plan. It should be something you think about a lot, so you can focus on the work you want to focus on.
Read more articles on risk assessment.
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