How do think about risk?

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Risk management for SMESTaking risk is an everyday fact of business life and entrepreneurs who take risks that come off are often admired.

Risks can arise from adverse events, such as something giving rise to a legal claim/bad publicity or the loss of a key member of staff. There can also be risks of something good not happening, such as a project not working out or a marketing initiative not having the desired effect.

For the uninitiated, the term “risk management” may be corporate jargonese, but it’s really about being informed and asking:

  • Do we understand what may knock things off course and the impact?
  • What do we need to do to keep those risks at an acceptable level?
  • Are we actually doing what we need to do to manage those risks?

 

Risk can stem from:

  • Complacency – this might be assuming that everything is hunky dory with a key supplier and then finding it goes bust. Arguably Blackberry or Nokia and their response to a changing mobile phone market is an example. At a more mundane level, it may be assuming that your business is well controlled, when it is really exposed to inefficiencies or even fraud.
  • Underestimating the challenges of change – I’ve seen a business integration have an adverse impact on customers, causing some of them to walk; I sensed that raw numbers had been the rationale, with a lack of appreciation of the people risks. Not responding to changes caused by growth is another example (you may want to read my LinkedIn post Going Through the Gears of Business Growth).

 

What about intuition?

While charities and other public interest organisations have structured approaches to risk management, for many private organisations it tends to be more intuitive (especially smaller ones). Intuition is valuable, but it does require finely tuned antennae and also closeness to the business/proposition can cloud judgement. This may explain why banks tend to see smaller businesses as riskier than their larger counterparts!

Wrapping up

Last year EY produced a paper Turning Risk into Results, which concluded that global companies with more mature risk management performed better than their peers. We are long way off risk registers being de rigeur for private companies, but being risk aware can make the difference between success and failure and also help identify opportunities for improvement.

Pausing, standing back and some constructive challenge can go a long way.

How do you think about risk? Do you have examples of how being risk aware has helped your business?

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