Business Advisory Blog Business management information from Robert Griffin.

May 27, 2011

Managing Risk – So where do you start?

In my previous post on Risk Management “Managing Risk – So what should you do?” I stated that management needs to step out of the day to day details in order to look objectively at all the various aspects of the business. To make that meaningful I recommended using a SWOT analysis as a starting point.

OK so what does that mean?

A SWOT analysis looks at the (S)trengths, (W)eaknsses, (O)pportunity’s and (T)hreats of a business. In order to do that management, the owner, or preferably both, need to go through the process of reviewing all the various aspects of the business and determine which of these categories they currently belong in. Notice I said “currently” belong in not where you’d like them to be. But in order to do that they first need to do two things. (1) Determine who should be involved and, (2) Find someone to take the lead in this exercise.

The next question is, how do we do these two things? To answer that you first need to do #2, find the leader for this process, someone to keep the process moving and on target. This is not someone who will have all the answers, because that person does not exist, nor is it someone who knows the most about the business, or is even involved in day to day operations. It should be someone who is more “outside” the business and less involved “in” the day to day details of the business, someone with the knowledge and experience to ask hard questions across all aspects of the business. That could be someone on the board of directors, if you’re of a size that has a viable active board, an outside business advisor or consultant, a shameless plug for someone like me, with experience in Risk Management. These are good options because they come with no preconceived notions of what or who are the problems or solutions, and they bring a wealth of experience from other businesses of various types and sizes to draw on. Accounting firms will do some of this, although I find most tend to be financial risk focused, for obvious reasons. And while this is obviously about financial risk the sole focus is not just on the P&L and Balance Sheet, as you will see.

Once a leader in place the other people that should be involved need to be chosen. These should be managers from each area of the business. I know all businesses are different but they all have key department heads or managers such as the CEO or President, a Chief financial Officer or Controller, and so on for the heads of Operations, Sales, Marketing, HR, R&D, IP, etc. again, all dependent on your particular business. This group must be able to remove themselves from the day to day workings of their position when involved with this analysis and work on the business for a change not in it.

So, as you work on finding a leader for this group, and who the others are that should participate, keep in mind, this is not an assignment to identify the biggest problem troubling the company right now and solving it. This is to review all aspects of the business to determine whether they are strengths, weaknesses, opportunities, or threats to the business.

Being this is Memorial Day weekend, the beginning of summer, and the economy continues it’s inconsistent way’s, what better time to take a step back and look at what your business is doing, and how it’s doing and give some thought to where it might be headed from here. Do you know what’s ahead? Are you prepared for it?

Give it some thought and we’ll delve further into it next time.

Robert Griffin

July 1, 2010

Risky Business

Every business is at risk every day of having something happen that has a significant negative impact on that business. Ask BP!

Well, no kidding, everyone knows that.

Okay, if everyone knows that, how come so few can tell you what those risks are? (Besides the standard – lost sales, higher costs, and declining selling prices.) Worse yet, few of those who have at least thought about it that far, know what they’d do if any or all of those things happen.

So what else could go wrong?
• What if a key supplier goes out of business?
– Do you know how financially strong they are?
– What would you do? How long would it take to qualify a new supplier and get material?

• What if your bank calls your revolver or changes the terms so you have to write a big check to meet covenants? Do you have the wherewithal?
– You say, “That can’t happen to us. We have a long standing relationship with our bank and we’ve always met our covenants.” Well, you’re wrong. The board at the bank can vote to change terms anytime they want. It may have nothing to do with you. Maybe they just want to lower their risk profile; maybe they feel they have too much out in commercial revolvers in this economy. Whatever the reasoning, you will be impacted. Point is: they can change any time. I’ve seen it, and you will have to deal with it.

• What if you have a major business interruption, for example, a local power outage for two weeks. It happened here in Central MA two years ago. Or what if your business had a fire or other unexpected catastrophe?
– You can’t deliver to your customers. How will you get back up and running? And how long will it take?
• Your customers around the country and the world don’t know, nor care, about your localized problem. They’re worried about their own business. How do you keep them or get them back?
• Do you have business interruption insurance?
– If so, you’ve had to go through the steps of planning for this.
_ If not, you should at least look at planning for this type of occurrence.

Bottom line: You need to think about the things that can negatively impact your business and plan for them so you don’t become the BP of your industry. Obviously, even very deep pockets do not replace good planning.

As Dwight Eisenhower said, “In preparing for battle, I have always found that plans are useless, but planning is indispensable.”

Robert Griffin

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