By Leon Gettler
The importance of risk management is growing as the business world becomes more complex and more interconnected. Risk management is about identifying potential risks to the profitability or existence of the company. It’s about assessing threats and putting plans in place in case things go wrong. Risk management takes in a wide variety of areas: enterprise risk;, corporate governance;, regulatory and operational risk,; business continuity, ; information and security risk, ; technology risk,; and market and credit risk.
While larger companies hire risk managers, the job is left more to the general managers in smaller businesses. As Ron Ashkenas writes in the Harvard Business Review, every manager is a risk manager. Risks could include project risks, where projects might run over-budget, failing to meet the deadline, reputational risk and customer risk, just the sort of thing managers should know about. And, he says, managers also need to know what sort of risks the company can take.
Ashkenas writes: “There are undoubtedly many other types of risk that every leader needs to manage – staffing or skill gap risks (what happens if we lose some key people?); budgetary risks (how do we get our work done if the budget is cut?); supplier risks (how do I cover a shortage of key materials?); and many more. The often-unrecognised part of the manager’s job is to identify these risks and prepare for them should they occur. And that goes for unanticipated positive developments as well, for example how to cope with a sudden surge in orders.”
“Yet at the same time, one of the recurring themes for managers these days is the need to learn how to take risks, which may seem contradictory to the notion of managing them. But in many ways the thought processes for each are the same. To take risks effectively you need to anticipate the possible impacts of your actions, and then make a conscious decision about whether to go forward or not, or to go forward in a way that will reduce negative consequences.”
“Perhaps one way of learning how to take risks is to be more conscious about the built-in risk management aspects of your job. If you improve your ability to identify and mitigate the ongoing business risks, it should give you more confidence in dealing with the personal risks required for innovation and working outside the box.”
Business Victoria says managers should get people at all levels of the business to think about risk. That means making sure everyone knows whose job it is to plan for and manage the risk. It also advises managers not to assume that risks operate in isolation to each other. A minor risk can combine with bad circumstances and that can create a major problem. A slower delivery time, for example, could lose customers which would affect cash flow.
So how then does a manager identify risks? Where do they start?
The Queensland Government business portal says managers should review business plans and think about what they couldn’t do without, and what type of incidents could impact on these areas. They need to ask “what if” questions, brainstorm, analyse events, assess processes and consider worst case scenarios.