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4 Critical Aspects of Risk Management in Smaller Firms
noreply • Jun 21, 2016
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Superficially this may appear to be a simple task, but if you’ve only spent a small amount of time compiling the list it is quite likely you’ve missed a few. So do some serious thinking and ideally ask for assistance from an outsider to question as much about your business as
So you have your list of risks and you’re confident the list spans the space of potential downsides your business faces. Now is the time to determine how much control you have over any possible risk events. For your internal operations you do have substantial control. Clearly your processes have to be documented and your staff trained to perform their respective tasks.
To ensure training conforms to current activities, the documentation has to be current. Only then can you “pass the bus test” and the back-up person filling in for an absentee can perform the task correctly and in a timely manner.
A useful way to think about risk management is applying the old adage that the chain is only as strong as its weakest link. In this context that means every staff member has to “get it.” Getting it means they have been trained and understand their job and are able properly to carry out their tasks. This includes highly skilled and experienced individuals as well as new staff.
I’m reminded of my former London-based firm’s policy of hiring disadvantaged school leavers to give them an opportunity they wouldn’t otherwise have. One was a 17-year-old woman that had never worked before and I was tasked with providing an induction to risk management. This was part of the process the firm employed with all new employees so that early on they would be introduced to all activities of the firm and be better able to perform their role. I have to admit that initially I was at a loss in this case. Then I asked her what tasks she had been told that she would perform. Her reply gave me what I needed to bring her to the point where she “got it.”
Now let’s consider external factors to which a business likely is exposed.
We’ll take a simple example of a firm that produces items that other firms use to create things to be sold to end users. That is, your firm is a member of the supply chains of your customers’ businesses. Your customers have selected you because you provide a quality product that they rely on to create the products they sell to their customers. So what do you need to worry about?
This list could be quite long. Your business almost surely also relies on a supply chain. Most if not all of the following are concerns for any business.
- Are all members of your supply chain reliable providers of the input you need?
- Have you assessed this attribute across your entire supply chain?
- What contractual arrangements are in place with these firms?
- Do you have recourse should one or more of them experience a business disruption?
- Do you hold input inventories to guard against such a disruption impacting your ability to deliver to your customers?
- How long will your inventory allow you to meet your obligations to your customers?
- Is this time sufficient to source an alternative supplier to meet your needs going forward?
- Do you maintain current lists of alternative suppliers to make supplier replacement a straightforward activity?
So far, we are only dealing with your supply chain and there are a number of items to be aware of and managed.
- training of new staff,
- increasing the reliability of production activities, and
- ensuring that absenteeism does not impact production.
If you’d like to share your experience in managing the risks to which your firm is exposed, please contact me at bnewton@clevelpartners.net or call me on (949) 680-8359. If you’d like to discuss any challenges you are facing with respect to managing risks, we offer a free one-hour consultation where we can explore ways of improving your firm’s performance.
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