There is no question about it. COVID-19 hit businesses in a way no one would have ever thought. Thousands of businesses were forced to close or adjust their business models to survive. How was it that some companies had to shut their doors for good, while others in the same category were able to sustain, and in some cases, even thrive throughout uncertain times? I firmly believe It boils down to risk management.
Risk management is the process of identifying and solving problems, issues or disasters before they happen. Doing this will in theory, prepare businesses for the worst and allow them to make more confident business decisions in regards to their future objectives.
So did the businesses that were forced to shut down not manage risk appropriately? Or was the pandemic something way outside of every business owner's scope?
I think it’s a little of both. Infectious diseases are not normally something that companies consider to be a serious threat (unless you're in the medical field.) But also, In my experience companies do not spend the required amount of time or money to implement a strong strategy should things not go as planned. In many cases, risk management becomes an afterthought. It used to be a check off the boxes activity but should be a serious and well thought out matter.
For those businesses that do take it seriously, the benefits and rewards are huge. These businesses have the ability to make better and more confident business decisions and have better control of all important factors like cost and profit. Also, risk management gives employees and stakeholders peace of mind. Employees need to know that their jobs are safe and stakeholders need to know that their money is put to good use.
There are all different kinds of risks that threaten a business. Let’s look at the risks with the most impact.
- Business Risks: The risk of going out of business from external factors like a recession or tough competition.
- Operational Risks: The risk of profit loss due to a failed internal process or people.
- Financial Risks: The risk of not enough cash flow to meet obligations or sustain the overhead costs of the business.
All these risks and many more should be looked at on a regular basis to determine a course of action should things go sour. A plan B, C and sometimes even D is good to have especially with large organizations that deal with large sums of money with a large number of employees.
For example, what happens if you do not meet your sales targets 4 quarters in a row? How will your employees be paid? What will the business do to survive?
All these questions should be considered and a solution be well thought out.
Since the pandemic, a shift in the perception of risk management has begun. Businesses that were heavily impacted by COVID-19 realize that plan B is necessary for survival. Although risk managers (Individuals responsible for managing an organization's risks and minimizing the impact of losses) are a great way to determine potential threats, they are also very costly. Below I have listed five tactics businesses can consider in order to mitigate the many risks in these very uncertain times.
- Answer this question - What are the most critical risks the company faces right now? It could be external or internal factors. Write them all down and add at least 3 possible solutions for each.
- Accept the costs of mitigating risk. Sometimes putting a costly policy or procedure in place actually saves the company from even more costly situations or disasters. For example, many large retailers are implementing self-checkouts in each of their retail locations. Now a system set up like that can run upwards of $150,000. A costly change for sure, but these places now minimize their liability by minimizing the risk of their customers contracting COVID-19.
- Observe. What are similar businesses doing to minimize their risks? How can that help minimize risks in your business? The competition more than likely knows the industry or space just as well as you do. Look at what they are doing to minimize potential threats, it could work for your company as well.
- Keep good records. What does record-keeping have to do with risk management? Well, Situations will arise where businesses can be forced to prove compliance and avoid potential penalties and fees. Not only does it save the company from legal issues it also minimizes the amount of guesswork for future budgeting and hiring.
- Consider purchasing insurance. Whatever the business may be, there is always the option to buy insurance to protect valuable assets like employees or property. In doing this, companies minimize the risk of losing profits or the entire business over issues like employee health and safety, or property loss.
These five tactics will get businesses started. But it will take much more time and effort before businesses can truly reap the rewards for a strong risk management strategy. But I firmly believe it is worth it in the long run.
Risk management used to be a very small part of the company model and with the many unforeseen circumstances caused by the pandemic risk management is now being considered an integral part of businesses. If businesses are willing to give risk management the time and effort required on a regular basis they will see the considerable amount of value and benefits it truly adds.
No Author Available. (August 29 2019). Why Risk Management is Important to your Business. University of Notre Dame. Retrieved October 4, 2020.
River Logic. (September 30, 2018). How to Perfect Your Risk Mitigation Strategies. The Stream by River Logic. Retrieved October 5, 2020.
Sloan, Kayla. (January 21, 2017). How Entrepreneurs Can Reduce The Financial Risks of a New Business. Due.com.Retrieved October 4, 2020.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
Eric Dierker from Spring Valley, CA. U.S.A. on October 09, 2020:
Well done. Risk management is so critical.