| > | | | | controlled through a variety of methods. For |
| Risk is embedded in every opportunity a business | | | | example, traditional insurance is one way to |
| faces. And poor risk management can result in | | | | remove hazard risk. Financial risks can be |
| large financial costs, or even failure. Risk points | | | | managed through capital market hedging |
| can emerge anywhere: small scale project delays, | | | | transactions. Operational risks are minimized by |
| the misguided actions of an employee, or a fire in | | | | clear check and balance procedures and |
| an inventory warehouse. | | | | management oversight within the company. |
| This article will help any small business owner or | | | | Strategic risks can be minimized by better |
| manager better understand what risks are out | | | | documentation, such as protecting intellectual |
| there, and more importantly, how to better | | | | property rights. |
| control them. | | | | How I Have Managed Risk |
| First, I’ll explain why a systematic analysis | | | | My experiences have given me a clear |
| of risks is important and illustrate a simple risk | | | | appreciation for the importance of systematic and |
| management architecture. Then, I’ll talk | | | | robust risk management. What I talk about next |
| about how I helped companies better identify and | | | | is how I identified, evaluated, and mitigated |
| manage a variety of risks. | | | | various risks at three different companies in three |
| What is Risk Management? | | | | different industries. |
| Simply, risks are threats to your business or | | | | While I managed a Midwestern real estate |
| project. They are situations or events that can | | | | portfolio for Cohen-Esrey, risk emerged in several |
| affect the outcome of your decisions and actions. | | | | areas. The easiest risks to identify and mitigate |
| Therefore, risk management is the identification, | | | | were the hazard points, such as fire and water |
| evaluation, and mitigation of risks to a business or | | | | damage for an apartment building. More complex |
| project. | | | | issues, such as Slips and Falls on icy steps |
| Why is Risk Management Important? | | | | required us to put traditional insurance in place |
| All businesses exist for one clear reason: To | | | | with a covenant that said employees would also |
| make a profit. Poorly managed risks have tangible | | | | work to minimize any liability by removing snow in |
| and dramatic effects on the bottom line. | | | | a timely fashion. Other problems and solutions |
| Therefore, sound risk management is important | | | | were less clear cut. At one point we had issues |
| to ensure that your business can overcome any | | | | with employees walking off with tools |
| problems and continue to grow profitably. | | | | from the property workshops. To mitigate this |
| Threats to a small business or project can come | | | | problem, we restructured our recruitment and |
| from a variety of sources. In 2002, The Risk | | | | selection process. Vendor relationships also |
| Management Standard categorized risks into four | | | | became a liability issue. Only clear communication |
| areas: Financial, Operational, Strategic, and Hazard. | | | | on a timely basis minimized such vulnerability. |
| Strategic risks can emerge from competitors, | | | | Although most small businesses won’t |
| customers, or markets of a company. For | | | | encounter the risks I mitigated at HSBC brokering |
| example, the technological features of a | | | | financial derivatives, the experience built my |
| companies’ product may become obsolete. | | | | appreciation for risk. Our team worked on behalf |
| Operational risks can affect how the company | | | | of many global banks hedging financial market risk. |
| operates internally. Systems such as IT, material | | | | Although the market place conventions and |
| procurement, and accounting responsibilities can be | | | | contracts were similar, each transaction was done |
| compromised by employees. Financial risks can | | | | for a different reason. We analyzed the interest |
| hinge on financial market performance, such as | | | | rate environment, advised traders as to how to |
| foreign exchange fluctuations. The last type- | | | | better hedge their risk, and then brokered very |
| Hazard risk- can be the most damaging. Events | | | | large transactions. These experiences instilled in |
| like natural disasters, manmade disasters, and | | | | me the importance of understanding and |
| crime can permanently disable a company. | | | | transferring risk. |
| How to Build an Effective Risk Management | | | | Managing a Customer Relationship Project for |
| Strategy | | | | Reuters is where my risk management became a |
| An effective risk management strategy must be | | | | formalized business process. My job was to |
| systematic and robust. It also must be | | | | coordinate and implement a CRM initiative that |
| straight-forward, and simple to implement. | | | | stretched over 10 months and included staff on |
| An effective risk management strategy will have | | | | several continents. To better understand what |
| three stages: | | | | issues would affect the timetable and budget, the |
| Identify | | | | team put together a Risk Matrix. This illustrated |
| Evaluate | | | | three key issues: what each risk point was, |
| Mitigate | | | | its’ potential occurrence and severity, and |
| During the Identify stage, owners and/or senior | | | | who was responsible for mitigating it. At every |
| managers need to thoroughly examine the | | | | meeting the team would review the Risk Matrix |
| business from many different perspectives. All | | | | and identify any future risk points. As with most |
| risks facing all areas of a company need to be | | | | projects, communication is key, and this |
| identified. This should be done with as many | | | | encouraged a high degree of communication and |
| people involved as realistically possible to give a | | | | accountability. |
| complete picture. | | | | Risk is embedded in every opportunity a business |
| During the Evaluate stage, each risk is given a | | | | faces, and poor risk management can have |
| probability of occurrence and a severity of | | | | profound effects on the outcome of any business |
| occurrence ranking (This can be done with a | | | | endeavor. |
| simple 1 to 5 scale; 1 being rarely occurring | | | | Putting an effective risk management system in |
| and minimal damage). This allows senior | | | | place is the first step for a small business owner, |
| management to more clearly understand the | | | | who can then confidently exploit new business |
| extent of potential damage. | | | | opportunities. |
| During the Mitigate stage, the resulting risks are | | | | |