Surface Ripples

Do You Know Your Risks?

The world is littered with examples of companies and organisations that failed because they didn’t manage their risk effectively.

“Risk” means different things to different people and organisations. Since 2007 for example, the debate has raged over how much “risk” banks took, whether they and the rating agencies understood it and how much they should take now.

Some businesses and organisations have got risk management down to an art, others have further to go. One thing is: risk management is as much of an art as it is of a science.

In order to manage risk effectively, you have to be able to identify and measure its impact on your organisation. There are different types of risk, e.g. financial risk, operational risk, market risk and so on.

Identification depends on a number of factors, both internal and external. An organisation needs to identify to which internal and external risks it is likely to be subject.

Once you have identified the risks, you need to measure how much they could impact your business or organisation, and the likelihood of them happening. The higher the impact and likelihood of a particular event arising, the more significant its risk and the more effort you may need to put into managing it.

Managing risk can take various forms, including taking no action at all (yes, this is an accepted strategy!). Your chosen risk management strategy for a particular risk or group of risks will depend on a number of factors including likelihood and impact, cost of managing the risk and even what others do.

As an example, people choose to insure their car either because the institution lending them the money tells them to, or because they choose to so that, if hit by someone else, they will receive compensation (well, that’s the theory anyway). There may be circumstances where they choose either to take “comprehensive” cover, to take only “third party” liability or maybe even not to insure at all.

To summarise, risk is everywhere and we all have a basic grasp of it. We accept some risk more than other types (e.g. most of us don’t think twice about walking across the road, even though a higher percentage of people are killed doing this than jumping out of an aircraft with a parachute).

A prime example is staring us in the face now following the earthquake and tsunami that hit Japan over a month ago. Manufacturers are finding that “just in time” stocking techniques have all been upset by no parts ex-Japan. The alternative suppliers are not working flat out to fill the gap – and charging accordingly!

Have you identified your risk and what you can do about it?

William was born overseas and has spent more than half his life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, he started his own Performance Management Consultancy and works with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, he can be contacted by email or via his website which provides an excellent picture of his rich and varied portfolio of services.

Labels: Crisis Management, Customer Care, Financial, Risk, Strategy

posted by William Martin @ 23:09