COVID-19 Brings An Entirely New Dimension To Risk Management

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StrategyDriven Risk Management Article |Risk Management Strategy|COVID-19 Brings An Entirely New Dimension To Risk ManagementRisk management has always been an essential pillar of managing a successful company. But the current global pandemic is bringing it into sharp relief and showing many firms that their existing strategies simply aren’t up to the task.

In the past, executives planned for a range of common disaster scenarios: data loss, power outages, flooding, and financial collapse. For many, though, the current pandemic came out of left field. The majority of bosses didn’t see it coming. It wasn’t even on their radar.

COVID-19 is a “white swan” event, not a black swan, according to Nicholas Taleb, the man who came up with the definition. He points out that the world knew about the risk of a global pandemic but instead chose it to ignore it. In his view, the coronavirus that started in China is something that was a known risk (like an asteroid impact). Therefore, it was something that people could plan for.

He contrasts it with the experience during the financial crisis where nobody could see how events might play out (because of the complexity of the financial system).

Risk management, therefore, needs to change fundamentally. Companies can no longer go about their business, assuming that everything will continue as usual. We’re now living in a world where every executive knows that things can come to a screeching halt overnight with practically no warning. The challenge is to ensure that companies survive.

So, what changes are we likely to see?

StrategyDriven Risk Management Article |Risk Management Strategy|COVID-19 Brings An Entirely New Dimension To Risk ManagementCompanies Will Insure Against More Known Risks

Now that executives have had a taste of real risk, we’re going to see them increase their demand for business interruption insurance. More companies will want to know that they have a safety net, should something similar happen in the future. Furlough schemes protect workers, but they don’t provide comprehensive cover to allow companies to escape tricky market conditions following a disaster. Even with government support, a lot of companies we know and love today won’t be here in the future.

Companies Will Save More

Over the last decade, companies have borrowed a tremendous amount of money. Part of it has to do with their desire to boost their stock price, but a large part of it has to do with the fact that borrowing is now so much cheaper. Capital was once scarce, but today, we live with an abundance of the stuff. This fact pushed interest rates down to the point today where the average firm can borrow at a couple of percent, perhaps less.

The current crisis, however, has revealed to executives how dependent they are on lines of credit. If the money dries up in the future because of some catastrophic event, they will need to fall back on their reserves. And, currently, they don’t have much of those. Most firms are living on a knife-edge, unnecessarily.

Risk management practices are likely to change substantially, moving forward. Companies have had a taste of what an economic catastrophe looks like, and they’ll be planning so that they aren’t wrong-footed by the next one.

Preparing Your Small Business For A Disaster

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StrategyDriven Risk Management Article |Disaster Recovery Plan|Preparing Your Small Business For A DisasterSmall business owners wear many hats. They are marketers, IT specialists, inventors, accountants, security experts, website designers, human resources, and much more. There are so many different things to think about every single day, so it is little wonder that occasionally, something gets overlooked. For many businesses, that is a plan for what you would do to get your business back up and running after a disaster strikes. Almost three-quarters of small business owners do not have a written disaster recovery plan. While it is something that you hope you never have to use, having one in place is imperative.

Depending on where your business is based, hurricanes, tornadoes, flooding, and fires are just some of the things that pose a risk to your company and your livelihood. Here, we look at some of the things that you can do to mitigate the risk, and if the worst should happen, what you can do to get back on your feet as soon as safely possible.

Before a disaster strikes

Identify responsibilities

Every person within your company has a role to play and responsibilities to handle, but often these can become blurred. It is important to note down in your disaster plan and make sure every person is aware of their responsibilities, and should there be a disaster, they know what they need to do.

Back up documents

The last thing that you want to do when your premises have been damaged or destroyed, or if conditions have made it unsafe to travel is to have to worry about finding out important documents. It is essential that you have at least one copy of all your relevant documents – insurance details, inventories, employee details, etc. Store these somewhere secure, and that is easily accessible.

Install security cameras

These might be damaged in the event of a disaster, but they are still worth having in to see what happened. They may be useful if you have to claim on your insurance as well.

Have secondary power sources available

Sometimes, the whole premises might not be damaged or destroyed, but the electrics blow or a storm knocks out your power. Give yourself a chance of trading, or at least make sure anything that relies on electricity such as fridges, freezers, tanks for animals etc. are kept running and protect your stock by having a secondary source of power available, such as industrial engines and generators.

Inventory

For both stick purposes and insurance purposes, an inventory is essential. Where possible, keep receipts and invoices as you may be asked to hand these to insurance companies as proof of costs, but having an up to date inventory of stock, machinery, and equipment is useful.

When a disaster strikes

Inform your employees

One of the first things that you need to do is inform any employees who might be due to work that day so that they know exactly what to expect. It is important to have a contact list accessible at all times. You also need to have a contingency plan fr paying your staff – it is vital that you try to keep paying staff as normally as possible, as you may find that you do not have a workforce when you are back up and running.

Work remotely

You may need to work remotely for a while, as may your staff. Ensure that you have access to the technology and tools you need – this is where cloud services are a good idea, as you and your team can access any documents required to continue working from anywhere in the world. Ensure that any confidential information is encrypted to prevent any hacks in the transfer of information – the last thing you want to be dealing with at this point is a huge data breach!

Let your customers know

Your customers keep your business going, so it is imperative to let them know what is going on as soon as possible. Pop a note on the door if it is safe or appropriate to do so, informing them of the situation and when you expect to be open again, as well as any contact details. Put a note on your website and a post out on your social media platforms.

Talk to lenders

If you have any loans or finance on anything, talk to your lenders and creditors. In a situation such as this, many will be willing to work with you to give you a payment holiday and catch up when things are back to normal, but if you don’t ask, you won’t get!

You can’t stop a disaster from happening, but the steps you take to prepare for one and how you deal with it afterwards can make the situation a little less stressful and get you back up and running as soon as possible.

How to Protect Your Organization From the Amazon of Your Industry

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StrategyDriven Risk Management Article | How to Protect Your Organization From the Amazon of Your IndustryThe trend towards consolidation in industry has become a threat to any business whose leadership has a desire to maintain its own identity and strategic path. If you think you, your company, or your industry is immune, I urge you to look at the telltale signs.

If you are one of those business owners or leaders who have invested many years of your life building a brand, then you most likely have a vision for that brand for the future that exists beyond your involvement. Sure, you could decide to sell the business or have it acquired by another organization, but the control of the decision should be yours.

So what do you do if you’d like the company to stand alone moving forward?

The Hidden Threat That Many Do Not See

Many signs of corporate consolidation are apparent; we read about them in journals and online every single day. XYZ corporation announces the acquisition of ABC LLC, etc. Mergers and acquisitions have been around forever, but there is a new legal form of conquest that is allowing organizations to steal market share from well-established businesses. Does it exist (yet) in your niche?

The menace of which I speak is the digital marketing organizations that are springing up in most industries, offering services on a pay-per-lead basis. If you are an established business, you likely have encountered one or more (or your marketing department has), and perhaps you have even paid for their services. These organizations spend their resources online, gaining a marketing edge, and then sell you (or your competition) the data on the leads. It seems like a win-win relationship at first.

But consider this. Isn’t this type of behavior, by you and your competition, outsourced marketing? No big deal, right? They spend money to generate consumer information, and then you buy it. Outsourcing frees you up to focus on things other than creating new business opportunities. It’s a true parasite-host relationship, where your organization serves as the host, and the digital marketing organization serves as a benevolent parasite.

Over time, the parasite will get large and robust. It will more than likely service many companies, not just your own. When they hit a point of market saturation, who do you think will be the most prominent brand known to the consumer? You? A competitor? No! It will be the digital marketing company that has been growing its reach across digital channels.

I believe that at this point, the digital marketing organization will have the leverage, and it is then that the parasite begins to consume the host. They raise the price on your cost per lead. If you refuse to pay, they merely sell the information to a competitor. Or worse, they quit selling information exclusively; instead, they sell the same information to multiple organizations. Once they are large enough in the eyes of consumers, they have the leverage to do this.

Would you like some real-world examples of this? Look no further than Zillow in real estate or Homeadvisor in the home services sector. These marketing-only organizations started simply with a website, but now each is the biggest name in its field. Zillow is now buying homes and working directly with home sellers. Can it be much longer before they have a buyer service available?

How To Avoid The Digital Marketing Parasite

If you own, lead, or manage an organization, acknowledge that the primary task of any business is the generation of new customers. You cannot outsource marketing, or it will put your company in a position to finance the organization that will one day put you out of business.

Take care of the parasite when it is a pest. Ensure that you run a learning organization that evolves its marketing strategy to utilize the same channels and processes that the parasite would use to unhinge you.

The parasite exists in every location and every field. Do not make the mistake of outsourcing business generation responsibilities. Instead grow your digital marketing solutions so that your company can thrive and grow into the future.

About the Author

StrategyDriven Expert Contributor | Joe ManausaJoe Manausa is CEO of Joe Manausa Real Estate in Tallahassee, Florida and author of The Business of Getting Business: The Digital Marketing Guide for Small Businesses.  After observing industry giants move to a digital-first marketing approach, Joe made the transition within his own company, which resulted in over $10 million of revenue from the business’s website.  For more information, please visit lidpublishing.com or https://www.digitalmarketingforbusinessbook.com/.

How You Can Protect Yourself as a Business Owner

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StrategyDriven Risk Management Article |Protect your Business|How You Can Protect Yourself as a Business OwnerRunning a business is challenging and can be extremely stressful at times. Many things can go wrong, from losing a client or a slump in sales to an employee threatening legal action against you. This is why you must have things put in place to protect your business and yourself as the business owner. Here are some ways that you can do this.

Insurance

Every business needs insurance, and it is illegal to being trading without it. There are many different covers you can have included in your policy, but things like errors and omissions, business interruption, general liability, and worker’s comp cover are the most common. Your insurance policy will help protect you financially and legally for things that are included in the policy. Even if you think certain events are unlikely to happen, it’s better to protect yourself against unforeseen circumstances that could potentially ruin your business.

Employment Law

If you’re going to hire employees to work for your company, which is most likely, it’s worth becoming familiar with the employment laws. It’s better than you have at least some basic understanding of what your rights are as an employer and what your obligations are to your staff. If you are struggling to comprehend the employment law, seek the advice of an attorney who can explain this to you in terms that you understand.

Accountant

Your business finances are essential. Without a healthy revenue stream coming in, your business will struggle to stay afloat and could potentially go bankrupt. It can be challenging to control your finances effectively, especially if your sales are taking a hit. However, you still need to make regular outgoing payments for this like rent on office space, employee wages, bills, and so forth. Hiring the help of a professional accountant could help you protect your business’s financial health by advising you on areas where you can save money and how to make the best reinvestments into the business. They can also monitor any suspicious activity that appears in your accounts, which could save you from legal issues and financial ruin.

Human Resources

Smaller businesses might not be able to hire a specific HR team, but every business should have an HR representative to protect both the company and the staff. HR is responsible for mediating and taking record of conversations regarding grievances in the workplace, whether that be between two staff members or an employee and the employer. They will try to resolve the issue at work to avoid it escalating to legal action; however, if this does happen, they will also be there to help with the situation along with the hired legal time.

Contracts

Finally, you should always have contracts drawn up for anyone you are doing business with. From employees to suppliers, having these contracts in place will be proof that you have agreed on specific terms of service. They will also make the other party more comfortable and hold you accountable for your end of the agreement.

You must protect yourself as a business owner. Many things could go wrong, therefore, don’t allow yourself to get caught out by not thinking about these basic things that you should have in place.

8 Leading Areas for Change In Risk Management/Analysis In The Coming Years

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StrategyDriven Risk Management Article |Risk Management|Risk Management and Where It Could Go In a Foreseeable FutureBottom-line performance is a vital aspect of any business. Managers and people in higher positions, in general, are always looking for ways to improve bottom-line operations and minimize the risks. Risk management helps them stay on top of the market challenges and trends in the relevant industry.

However, markets and industries are dynamic concepts. To answer the latest challenges, risk analysis has to be active as well.

More Precise Risk Models

Predominantly relying on the human workforce makes risk models way too complicated. Risk management cannot be efficiently applied to risk models that have too many factors to account for. It’s one of the most significant areas for change in risk analysis in the coming years.

To assess the risk, companies will be advised to simplify the risk models and thus help themselves. With simpler risk models assessing risks and delivering relevant strategies to mitigate them will become significantly more comfortable than today.

Some of the strategies we will see are process automation and streamlined communication, both internally and externally.

Digitization

Risk management, as we know, it will definitely change in the coming years. Scanning is an ongoing process most businesses are exposed to. Some of them directly, others indirectly. Anyhow, the digitization itself offers away too many benefits for companies to leave it behind because it brings new risks.

The digital era has also brought to light new business models facing brand new risks, which makes digitization a leading area for change in risk analysis. People in the risk management industry will have to identify these emerging and evolving risk types and integrate them into the existing risk models.

Interconnectedness and Collective Risk Management

Businesses across the world have become an integral part of the networked economy. Interconnectedness comes with a great many benefits – quickly penetrating new markets and growing customer base, being just a few of them. Meanwhile, supply chains have become more complex.

Businesses actively engage on different levels with different external stakeholders. All of this, at the same time, creates a network of risks. Market risk analysis slowly shifts toward a joint effort.

All businesses in this network will have to rely on their partners that they can identify, manage, and reduce risks. It will definitely change risk management in the days to come.

StrategyDriven Risk Management Article |Risk Management|Risk Management and Where It Could Go In a Foreseeable FutureRisk Management in Real-Time

The digitization and interconnectedness allow for new risks that some organizations don’t have experience with. All this calls for a pervasive approach to risk management.

Being able to assess and minimize the risks in-house and outside will become a leading practice in many industries. It will push risk analysis toward the use of technology and software solutions.

How will the risk assessment field answer to these new challenges? One of the possible answers is pursuing opportunities to monitor and manage risk in real-time. The technology is already here. There are different types of sensors and tracking and monitoring solutions that can help streamline manage risks and mitigate it before there is a need for damage control.

Risk Transfer Instruments

The most common risk transfer instruments are contracts and insurance. They are widely used across verticals to cushion the blow of unforeseen circumstances and allow businesses to continue their operations. Two main factors driving change in risk analysis are financial institutions and risk events with potentially the most significant impact on business.

The financial industry is always working on coming up with new financial instruments to help businesses monetize and transfer risk. It will be a great challenge to assess whether or not to invest in these instruments.

On the other hand, risk events that could potentially have a high impact on operations are imminent. The climate change, cyberattacks, and the global pandemic are just a couple of them.

StrategyDriven Risk Management Article |Risk Management|Risk Management and Where It Could Go In a Foreseeable FutureFeasible Level of Risk-Taking

Markets are becoming saturated and more volatile as we speak. The competition is harsh out there, and that creates a frame of reference in which businesses can do little without intentionally taking risks. At the same time, deliberately taking risks drives change in risk analysis.

Finding new ways to accurately identify, assess, and measure risks are becoming more important as we speak. Organizations will turn to calculate the accurate upside value for a chance to be able to decide whether it is feasible to continue operations while taking risks intentionally.

Enabling sustainable risk-taking is potentially the area that’s going to change the risk analysis the most. Managing risk will start drifting away from only identifying the risks that have to be avoided towards taking risks to drive value, performance, and productivity.

AI To Help Human-led Risk Management

AI, machine learning, and big data are driving changes across verticals. Risk analysis is not an exception. The formulas, knowledge, and experience risk managers leverage to stay on top of managing risks are simply not enough. The landscape has become way too dynamic to identify and assess all the risks.

The technologies mentioned above will help businesses extend their market risk analysis practices and make them error-free. Smart tools can detect, predict, and prevent risks the very moment they become a real threat. The best thing about it is that these are fully autonomous systems capable of self-managing risks entirely on their own.

Risk Insights and Behavioral Science

The human factor is a crucial piece for solving the risk puzzle. Risky behavior is the subject of many new studies in the fields of social, psychology, neuroscience, and cognitive sciences. The findings can’t be ignored. Thanks to the systematic approach, the studies have identified the factors and personality traits correlated with risky behavior.

The results of these studies are already changing the risk analysis landscape. We can already see some organizations having a Chief Behavioral Officer on the payroll. At this point, it’s safe to assume that the results of these studies are going to drive at least some new changes in risk management practices.

To answer the new threats, risk management will have to move closer to a model based on proactive, real-time, and technology-powered practices. These eight areas have the most impact on market risk analysis and risk management, in general, and will most definitely change it in the coming years.

About the Author

StrategyDriven Expert Contributor | Gracie MyersGracie Myers is a content writer at Research Optimus. She enjoys writing on various topics mainly associated with Research. Her famous articles are on the topic of Business Research, Market Research, Business Analytics and many more.