Impact - Analysis - Risk
written by : William F Bryant At first glance, this may seem to be an interesting section. It may seem to be backward in its naming. But, unfortunately, this is the order that businesses contemplate events that cause adverse outcomes to their profits. Risk mitigation tends to be reactive because, only after something adverse occurs, is the issue addressed.
A firm's first realization is that there has been an impact to sales from some source, whether internal or external. The next thought is what is, or will be, the total magnitude of this impact. Finally a solution, and hopefully a resolution primed toward future prevention, is developed if the impact is not catastrophic. How might this be better addressed? When developing or operating a business the best approach is to make an initial detailed analysis of potential risks to business operations. I would begin upstream and work downstream. The level of detail can ease outside of your immediate operations, but it is still important to have as complete an understanding as possible of your suppliers. Operations, their suppliers, solvency, alternative suppliers and so on. Downstream, it is similarly important to have an understanding of your customers. Primary customers, percentage of revenues, schedule of receivables and so on (Much of this could come from or be shared with the customer analysis completed by marketing). Within your own operations you will probably find that several control systems for ordering, payables and inventory are already in place, but it is still pertinent to give them a review from time to time. Some of your risk mitigation will be detective, some reactive and some preventive. As technology and operations change it may make available options for preventative process where there were only detective at comparable cost. Cost is another consideration when addressing risk. There are times the cost to prevent will exceed the cost of the risk itself due to either the infrequent nature of the risk or the minimal cost of the risk. You will probably have developed a risk ranking method that measures both the severity and the frequency of possible risks. This will help when planning for any mitigation activities. Even though, not all possible risks to your business are going to occur or seem to have a chance of occurring, having a plan, I feel is essential. I believe that a risk SOP (standard operation procedure) 'manual', will give you or employees a "go-to" procedure to keep your operations running. A 'manual' doesn't necessarily mean a large text of risk procedures. I tend to think that the manual should have categories and contact information. For example, alternative suppliers for materials essential for operations. Perhaps emergency clean up or maintenance. You would be surprised how many companies believe that they have just such a manual, but whose employees have no idea how to access the information when the time comes for just such an emergency. |
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