The Business Of Risk

Today, we see a number of risks associated withextremely costly mistake, sometimes upwards of
businesses of all sizes, ranging from identity theft,$10,000 or more. In this instance, there would be a
embezzlement, natural disasters, personal injury,number of things to consider. Is the individual heading
fraud, vendor failure, taxes, finances, and more.up the tax department qualified? What type of
Because of the increasing number and type oftracking system is being used? Is the department
business risks, companies have had to make someshort-handed? Is the person in the mailroom
major adjustments in overall operations,delivering mail on time? These and other possibilities
management, and strategy. When you couple risksexist, which is where a risk management team would
with competition, you can see that it is imperativehelp. Once the problem area or potential risk is
every company have a solid plan in place forisolated, then changes could be made accordingly.
protection and success.Another factor that unfortunately, is sometimes
One of the most important aspects of strategy isoverlooked is the client. Obviously, if you are going to
ensuring a solid risk management team is in place.run a profitable business, you need satisfied
These individuals would hold the responsibility of notcustomers. Perhaps there are areas of service or
just identifying potential risk but also creating andproduct where customers are not happy but because
implementing sound processes, techniques, orno means of communication or input is in place, you
technologies for prevention and/or correction. Thehave no idea. Therefore, you might think about
risk management team however will not work insending out customer surveys, trying to find any
isolation but in tandem with other key stakeholders,weaknesses that need to be strengthened. It is
such as department heads and the Executive team.imperative that you know your customers and that
Having a winning risk strategy is going to give yourthose customers are so satisfied with what you
business the foundation on which to build a strong,offer so they will not look elsewhere.
competitive company but also a business thatThings happen in businesses and sadly, many great
employees and clients trust.companies have gone under because of lack of risk
What is the key to creating such a risk strategy? Formanagement and/or strategy. Enron, is only one of
one thing, you want to be productive but not makemany examples in which a failure to manage risk or
quick decisions. Unfortunately, we have seen manyeven identify risk ruined a company. Another often
larger corporations that have put "quick fixes" intocited example is Barings Bank which was one of the
place, only to find they end up with a laundry list ofmost respected merchant banks in the United
new problems. Yes, it is essential that a good plan beKingdom. The company which held $900 million in
developed as quickly as possible but make sure thecapital was bankrupted due the actions of one trader.
plans being considered are not just short term fixesThe losses and subsequent bankruptcy could have
but will be beneficial long-term. While a riskbeen avoided if internal controls had been in place.
management team can identify potential risk events,There are countless other global examples of the
the team must work in conjunction with theconsequences of not identifying risk events.
organization so that strategies are aligned with theWhile federal regulations such as Sarbanes-Oxley
business goals. In essence, the best risk strategy ishave mandated corporate governance and controls,
one component of the overall business strategy.managing risk is simply good business. Identifying risk
In addition, you need to review your company insideevents and formulating response strategies enable
and out, top to bottom, to determine where risks lie.the organization to successfully execute its
For example, missing payment on taxes can be anobjectives.