Author Gary W. Patterson, aka “The Fiscal Doctor,” is an expert in the field of enterprise risk management. His latest article, “Risk Management Should Be Top of Mind—Stop Making Excuses,” offers advice for business operators on how best to approach risk management, particularly crucial in these economic times.
The global financial crisis is a perfect example of what can happen when nations and companies ignore risks (read: do not heed the warning signs) in the hope that the inevitable will not and can not happen. There is no time like the present to implement the company contingency plan. Below is a framework to help your team start the process of developing a risk management program. Not only is it the smart thing to do; it is the right thing to do.
Step One: Bite the bullet and get started. If you are like most companies, identifying potential risks is probably the hardest part of developing a risk management scenario. In fact, this is cited as the main reason why most companies put it off. Not only is this just an excuse; it is lazy and irresponsible thinking. If your management team is at a loss as to how to get started, you are in luck. Standard & Poor (S&P) has created a list of four major risk categories that can be just the springboard you need to hold your first brainstorming session. Listed in alphabetically order, they are:
Environmental Risks:
• Business continuity
• Business market environment
• Environmental
• Liability lawsuits
• Natural disaster/ weather
• Pandemic
• Physical damage
• Political risk
• Regulatory/ legislative
• Terrorism
Financial Risks:
• Capital availability
• Credit counter party
• Financial market risk
• Inflation
• Interest rates
• Liquidity
Management Risks:
• Corporate governance
• Data security
• Employee health and safety
• Intellectual property
• Labor disputes
• Labor skills shortage
• M&A/restructuring
• Managing complexity
• Outsourcing problems
• Project management
• Reputation
Supply Risks:
• Commodity prices
• Supply chain
Step Two: After your team has reviewed the list, it is now time to check off the risks that apply, even tangentially, to your company.
Step Three: Review the S&P list again to see which of the risks may be catastrophic and damaging to your company. These risks warrant further consideration even if the likelihood of their occurring is low.
Step Four: Using consensus, identify three to five of the most critical risks your company faces.
Step Five: Create an action plan that deals with the critical risks you have identified. The action plan should include next steps and target dates.
Step Six: Follow up on the action plan that you just created. Make sure it is executed properly.
Step Seven: Evaluate whether your next step is to dig deeper into the action plan you have created, add additional projects to the plan, or create a more robust action plan. The first two choices suggest that you begin the process again, starting at step two. Alternatively, if you need to consider a full-blown risk management system, move forward knowing you have benefited from the initial work.
Risk management takes time, but think of the alternative. You do not want to be in a position of would have, could have, should have—if only we knew. There are many outside resources that can help you get started, so do not delay this call to action. You owe it to yourself and your shareholders.
When the economic climate changes as dramatically and as frequently as it does nowadays, contingency planning and risk management should be on every executive dashboard. Face your risks squarely and come up with a flexible ERM plan. Do not wait until you are forced to make a Mayday call to a world that is embroiled in its own crisis.
Bottom line? - Stop Profit Leaks Now. Apply this information to improve your profitability, reengineer business models, and strengthen or gain competitive advantage in the marketplace.
And apply the free Fiscal Test available at http://fiscaldoctor.com/fiscaltest.html.
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