Risk Mitigation In Uncertain Times
New enemy, new risks.
Until very recently, businesses worldwide worried about traditional risks such as supply chain disruptions, volatile inflation, and shocks resulting from foreign exchange uncertainties. The aforementioned risks were enough to keep businesses preoccupied.
But the emergence of COVID-19 went beyond the wildest imaginations of risk assessors. Busy forecasting against the “traditional business” threats, it did not occur to most people that a virus could disrupt, and even halt, major world economic sectors.
A critical part of any risk manager’s job is to anticipate the unforeseen and plan for how to address it effectively. Coming to the table prepared with answers in advance requires foresight, planning, and time.
Risk mitigation remains a key concern for the c-suite as COVID-19 implications continue to unfold.
What can you do to soften the blow and ensure a soft landing after the crisis?
SpendMatters suggests beginning by considering the following risks:
- Disruption Risk: “Where’s my stuff?” A crop fails, a manufacturing plant is shut down, a shipping company unexpectedly goes out of business, etc. Your production line (and ability to serve your customers) is shut down and you need to react quickly.
- Brand Risk: “We’re in the newspaper? Why?” This is a risk that primarily impacts your top line and the one that gets the attention of the C-suite most quickly. Quickly finding the appropriate suppliers and their information is key to managing these events.
- Price Risk: “We’re paying what?!” Least associated with supply risk but having an outsized impact on procurement are price-risk events where something happens to cause a material impact on the prices you’re paying for key inputs.
For each of these risks, the first challenge is to identify who specifically in the supply chain is part of the issue. Doing so without automated information systems is nearly impossible and certainly time-consuming. But it’s important to keep in mind that you can’t fix a problem if you don’t know where it’s coming from.
What’s really needed to respond to changing conditions with agility is a platform that can tie together the data, the people, and the plans.
Analyze business impact
Not all risks within processes or functions in an organization should be treated the same way. A business impact analysis allows organizations to identify which parts of the business are most critical to its operations. Use the results to determine which parts of the organization to prioritize during a business continuity plan event to maintain operations.
Don’t replace- alter, adjust, adapt.
Risk mitigation efforts do not mean that the overall corporate strategy needs to change drastically. It could for some companies in at-risk industries, but probably not for most. Disruption does not have to spell disaster.
By classifying your potential risks under different weighted parameters, you’ll be better prepared to understand, respond and, hopefully, prevent them coming to fruition.
The concept of recalculating budgets and product cost at any time with different or current sets of data assumptions is something that is possible today with agile platforms.
Especially in times of uncertainty and dramatic fluctuations of external business conditions, it is essential to conduct scenario analyses, identify risks and opportunities early and modify course.
Those that will survive, and perhaps even thrive, in the current environment will have taken many precautions.
