INNERGISE!

When I was playing tennis the other day, I remembered the constant badgering from my tennis instructor when I was younger, telling me to move my feet.  It struck me that this was a great analogy for how to deal with the broad variety of risks faced by any company.  What the heck is he talking about, I hear you say!

In order to explore this topic, I want to look at (1) the type of risks that you can face and some examples, and (2) consider how you deal with them;

1.  Types of Risk

• Macro-economic risk

The wider economy hits a downturn.  We all know what that feels like with the current recession.

• Micro-economic risk

Your market sector faces specific problems.  Consumer trends change, or new technology makes your products redundant. (eg: the Video rental market being replaced by online downloads.

• Political risk

The politics of your business environment makes it difficult to operate.  I used to work with a joint venture supplier in Zimbabwe.  The political situation made it very difficult for them to source raw materials, as well as receiving interrupted power supply for their factory. 

• Financial risk

This can include exchange rate risk, interest rate risk or liquidity risk.  When the US dollar moved from $2=£1 to less than $1.50=£1, importers really felt the pinch, as they saw their margins squeezed, since many of their customers could not take on the price increase in the current climate.  If the interest rate increases, then you may well face increased interest charges on your loans.  If you hold stock which you find you cannot sell quickly, this may be considered liquidity risk.

• Systems risk

Have you thought what would happen in your company if your broadband stopped working for a week, or your main server crashed.  How would you deal with this?  We are increasingly reliant on our systems, but we therefore need to consider if they go wrong.

• Fire / theft risk

If you came into work tomorrow and found your office burnt down, or all your computers stolen, what would be your reaction?

• Employee risk

There are a variety of risks of employing people, ranging from Health and Safety  to theft to competitors pinching them. 

2.  Techniques for dealing with risk.

There are four basic ways to protect yourself against risk.

• Risk Avoidance – find ways to steer around the specific risk
• Risk Reduction – reduce your exposure to this type of risk
• Risk Transfer – you can either outsource the problem or insure for it
• Risk Retention – you can decide to accept the risk, and budget for it.

 If we look at the various risks I mention above, let’s consider the sort of actions you might take.

• Macro-economic risk

Are you providing a good or service that is based on want not need?  If so, can you spread your offering to include something that it fairly recession proof?  Can you broaden your market so you are not focused in your own country’s economy?

• Micro-economic risk

Invest for the future through Research and Development by recognising market trends in your product or service.  Spread your risk by working in another sector.

• Political risk

There is little most people can do to prevent political unrest, but you can move the business away from it.  In my example of our supplier in Zimbabwe, we dual sourced every product so that if we would not face interrupted supply. 

• Financial risk

The first rule of thumb should be that apart from investment banks and gamblers, we are not in the game of betting.  Therefore, do not sit there and hope that the currency will go your way.  Talk to your bank about how you can hedge your currency risk.  If you have loans, then consider a fixed interest loan.  It is far better to know what your outgoings are and plan your business accordingly.

• Systems risk

Ensure you have a robust back up procedure.  Follow the Grandfather, Father, Son routine, whereby you keep a back up of each day for the last week.  Each week you save a copy which you keep for a month, and each month you keep a copy.  Consider an online backup service, or make sure that someone takes the backup home each day.  Think about a Disaster Recovery Plan (see next).

• Fire / theft risk

Write a Disaster Recovery plan.  Identify another location to operate out of.  This might be a serviced office, it might be home working.   Think how you can get your systems up and running within hours.  Talk to your communications providers about redirecting the service.  Make sure your insurance is up to date and will cover the potential losses.

• Employee risk

Put in place a good Health and Safety Policy and employment policy.  If you are not big enough to have an HR Department to deal with this, then there are some very good companies providing good value services for exactly this.  Employee theft is a big problem so consider the prevention methods, and get the employees to sign up to them through the Employee Handbook / contract.  Keeping employees with your company is only partly about the money.  Consider other benefits, such as training, pension contribution, loyalty bonuses, and personal development schemes.

So how does all of this relate to tennis?  When you are receiving a ball from your opposition, you don’t know where it is going to come and how it is going to bounce, but if you move your feet (ie: prepare yourself) and get to the ball, you’re chances of getting it over the net are so much greater.  And so it is with Risk Management, if you prepare yourself against the risk, then you can deal with it in a controlled way.  If you don’t then you end up diving for the ball, and scratching your knees!