Wednesday, July 7, 2010

Risk Therapy 109 - RISK MANAGEMENT 2010


So you have a small business or an idea for one - where do you start and what must you have to keep the business thriving?

The most important ingredients for any business, and their significance, are as follows:
1. A predictable, secure, spread, sustainable income; without this you have no security - this is your primary business legitimacy indicator.
2. Risk management activities plan - this is your business risk health protection indicator.
3. Sufficient organisational resource options, at least two of each key item (either your own or outsourced to trusted business partners) - this is your structural strength indicator.
4. A contemporary, tested Business Continuity Plan (BCP), (sometimes called a disaster recovery plan, although this is a less positive title) – this is your adaption indicator.
5. A strong, almost personal, spirit or culture - your only true unique difference.

If you have these five items noted above then you have a business that you can manage or sell. How many of us can claim ownership of these elements in our business for any length of time? One could almost assess businesses and people using these criteria.

There are ‘nice to haves’ too, which you might deem essential to accelerate or boost business success in the early stages of development. These include:
1. One or more unique products or services, a unique delivery method and the means to develop more once they have been replicated.
2. Trustworthy, communicative, responsive business partners, including legal, banking and insurance.
3. A strong team around you.
4. Access to cheap investment capital.
5. Excellent marketing and promotional channels.
6. A positive profile within your customer base.
7. Previous success.
8. Market leadership.
9. A sense of humour.

The above nine items and many more besides, are not necessities and will develop over time if you attain business success; they will come to you.

In previous articles we’ve explored the many reasons why risk management is not practiced formally. Here are the principal and principle motivators for doing so:
1. Risk management is an internationally recognised best practice, for all sizes and types of business, in any location(s).
2. Intellectuals, business theorists, advisors, financiers, business schools propose and expound it uses and benefits.
3. Regulators agreed and have made it a legal requirement for all businesses in many large developed economies around the world.
4. It is a common-sense choice too as it prompts you to plan and act ahead.
5. If your competitors practice risk management and you don’t then you are handing them a competitive advantage and one that they can laud over you in their marketing.

Assuming that you are now thinking of using or augmenting your risk management practices, what should you seek to achieve?

Always remember business risks belong to you as the main shareholder(s). They are your responsibility and noone else’s. The 2008 Companies Act, due to be enacted in the third quarter of 2010, holds you personally liable for the consequences of your actions or inactions in your business.

Risk management books and degree courses refer to risk propensity (willingness to retain - adverse or tolerant?), propinquity (importance to you), severity, return frequencies and probabilities. In reality, most corporate risk managers regularly expend much time and energy identifying all sorts of potential hazards, then they ignore the majority of them as these risks are too remote or expensive to contain. It is worth mentioning that a good corporate risk manager always has a robust, comprehensive, tested Business Continuity Plan though, which is expected to respond to almost all triggers; take note.

Another lesson for all business owners, large and small, is that there is an almost unchanging set of strategic, structural or inherent risks; call them what you will. Whilst these don’t change quickly, our exposure to them does over time. The trick is find (and manage) your key risks before they find you. Contact us if you would like to discover, debate and mitigate the risks in your own profile.

One last point to consider. We tend to focus on external risks that have the potential to affect us. On occasion we elect to change our business structures or products and services, thereby exposing ourselves to internally generated risks. The impact of project cancellations and delays are considered into our plans. The distraction factor is often missed though. A change project takes on a life of its own and distracts us from our main business. Be aware of this in your planning.

Mirrors can be great teachers. Picture your business and reflect whether you would embrace the experience of being your own customer. Would you trust you to deliver on your business promises beyond this year? How long is your guarantee and what is it worth without risk management?

Paul Brightman - ART (Pty) Ltd.
Creators of Risk Therapy. or or or

+27 (0) 83 708 3634 & +27 (0) 11 646 2777.

Websites or or

ART is an authorised Financial Services Provider - FSP16339.

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