What could go wrong that would result in your company being put out of business?
You may know the answer to this question and are asking yourself: “Why do I need an advisor to tell me something I already know?” The answer is that we help you not only identify different risks that you may not have thought of but we help put together a plan to minimize the likelihood of these events from happening and a response plan if they do.
You understand what could go wrong, but do others?
You may understand the risks that face your organization but do other leaders in your organization understand risk? It is important that everyone recognizes risks and how they could impact the organization. Are your leaders doing their part? Risk is always changing and everyone needs to be on the lookout. We can help you define a risk managment process that continually collects risks, evaluates their relevance to your organization and helps you mitigate them.
General Types of Business Risks
There are many types of risk that threaten your organization day in and out. Some of the common high level risks that your organization should be considering are highlighted below. If you have any questions about risk, we are here to help.
What are your competitors doing (competitive intelligence)? How is your organization changing to keep up with consumer needs and tastes? How are you dealing with the lightening quick changes in technology?
Example of Strategic Risk
Retail – It has been foreshadowed for years and years that brick and mortar retail would fall victim to the web commerce. Did retailers like Sears, Kmart and Toys R Us do enough to address this complete upheaval? Every industry is impacted everyday by change… Is you company ready? We can help keep you stay ahead of the curve. You maybe making money today but there is no guarantee of that tomorrow
What impact does a decision or a project have on how much money you will make, have on hand, or if you will stay in business? This includes things such as your customer credit policies, how much debt your organization is willing to take on, interest rates, concentration of just a couple of customers and so on… We can help you assess your financial risk.
Example of Financial Risk
Organizations that are highly leveraged (large amounts of debt) are subject to higher financial risk related to interest rates. If interest rates go up, these organizations will eventually face higher interest costs could have a huge impact on their bottom line profitability. An example of a company having this problem recently is Rite Aid. Rite Aid carried a large debt burden that inhibited its organizational strategy and subjected it to a large financial risk tied to the uncertainty of interest rates.
What regulations are your organization subject to? Are you in compliance with all regulations? How do you know? If your organization is expanding into a different type of business, do you know the applicable regulations? How about employees? Many local governments are enacting their own requirements related to employment matters such as minimum wage. Other types of compliance risk could be violations of securities regulations or perhaps the foreign corrupt practices act (FCPA). We can help you build a robust compliance program that will reduce the likelihood of violations and could also reduce your organizations liability if it does.
Example of Compliance Risk
There are seemingly endless examples of organizations running afoul of laws and regulations. Back in 2012/2013 Wal-Mart became involved in an FCPA investigation. The allegation was that War-Mart de Mexico paid off Mexican government officials to further their business in that country. What made things worse is that there were allegations that Wal-Mart tried to cover up the incident when it came to light. Wal-Mart continues to receive scrutiny related to this incident.
How good are your systems, processes and people? Do you run into a lot of set backs day in and day out as you operate your business? This type of risk is very broad. It can include risk related to execution in day to day activities, disruptions due to system failures, failure of vendors & suppliers, natural disasters, hackers, fraud, and manufacturing anomalies (product defects and perhaps recalls) to name a few.
Example of Operational Risk
Several examples of operational risk come to mind. One being at the Hershey Company when they implemented SAP. The implementation went badly to say the least. The company was almost drawn to a standstill because it could not ship its product.
Protecting your organizations name is critical for long term success. To many times reputational risk is overlooked. When evaluating risk or “what could happen” next time, consider the potential impact on your good name.
Example of Reputational Risk
Wells Fargo has been in the papers recently. The issue was setting up accounts for customers without the customer’s knowledge. These unknown / unwanted accounts were set up to meet certain quotas. Although the overall impact on Wells Fargo financial statements was negligible, and the incident has not received notoriety from that perspective, the impact on their reputation has been significant. Take a look at a commercial Wells Fargo is running on YouTube This commercial directly addresses the scandals impact on their reputation.
Risk Isn’t Always Bad
Without taking some risk, business would stagnate. Taking risk is essential for business to survive. The question is how much risk is the organization willing to take to attain a particular reward?
Many times identifying how much risk an organization is willing to take is the hardest thing to establish. In fact, the level of risk an organization is willing to take may vary based upon the situation.
Avoid Bias When Assessing Risk
We have covered all the risks, things are fine. The famous last words before something bad happens. When assessing risk, be very careful not to let bias influence the outcome. When individuals become emotional about something they sometimes have blind spots when it comes to risk. It can be helpful to get an independent assessment of the risks an organization faces.