Risk management is a comprehensive management tool for identifying, controlling and minimising the impact of uncertain events. It reduces the production and financial risk of the business through diversification, insurance, hedging or forward contracting, maintaining cash reserves and creating flexibility in the operation.
John Patch, of John Patch & Associates, says that managing the “cost of risk” requires multi-skilling and is part of a healthy, well managed and controlled risk programme. “The bigger picture involves complete organisational culture change, as well as an understanding that managing an organisation’s risks is an ongoing journey of discovery and skills development involving the entire workforce.”
Patch looks at some of the critical questions that every business owner should ask themselves:
1. Have you implemented a strategy to manage your risks?
Businesses often fail to take into account that as they grow, so the size and nature of their contracts change. This has an impact on factors such as compliance, which is critical in today’s business environment. As a business expands, the level of risk it is exposed to increases, as do the compliance demands.
If you budget correctly, the cost of protecting your business should be between 4% and 6% of turnover. Note that this figure does not include insurance premiums.
2. Have you considered compliance requirements?
Think of a building project, for example. Compliance requirements are huge and multifaceted, including elements as diverse as tax, safety management and the employment of aliens.
A risk management strategy not only enables you to protect your business, but it also means that you can provide a chain of evidence in the event that something goes wrong. In business, you must be able to defend yourself to prove your innocence.
3. Have you assessed your business’s exposure to risk?
This involves assessing the probability and severity of risk in your organisation and plotting in graph format where your risk lies. From that, you can decide what risks are out of your control, what risks you accept, and what risks you need to transfer to a third party such as an insurance company.
4. Have you identified the risks creating those exposures?
Once you have a risk management strategy in place, you can begin to identify the source of risks to the company and manage them more efficiently.
5. Are you aware of all the types of risk you need to assess?
These include fire protection, security, business interruption, safety and operational, legal, ISO non-conformance, insurance, human resources and environmental risks.
For more information, call +27 11 888 7193 or visit www.seta.co.za
