Using Risk Management to Beat the Downturn
Few businesses are animated to construction risk treatment into their operations. But manager Max Rudolph argues a recession is the time to optimize
By Karen E. Klein
Given the current economic climate, small-business owners are wondering what risks may row in front, and to what degree to identify and horsemanship them. But rather than focusing on risk as a negative, entrepreneurs should consider risks as opportunities, says Max Rudolph, an registrar whose firm, Rudolph Financial Consulting of Omaha, works primarily with small and mid-size companies. He spoke recently with Smart Answers columnist Karen E. Klein about how risk management can back small companies today. Edited excerpts of their conversation follow.
Q: What can an actuary do in terms of risk management for a small firm?
A: A lot of what I do is helping them make identical what their risks are from the operational side. Most business owners are aware of certain risks, but all but at all times we can help them identify some others that they should be thinking not far from.
Q: A dare to undertake sounds equal something to be scared about, but you argue that risk isn’t always baneful.
A: We look at risks from both the downside and the upside perspective. For cite, on the supposition that you’re a local hardware store in a recession, you might conclude about the risk that your sales will go south. But you might also identify a niche where your sales will do more usefully in a recession, and emphasize that.
Q: What are some typical risks facing inconsiderable companies?
A: We break them down into categories. There are operational risks, like fraud, losing employees, or what you’ll produce if the same of your solution employees becomes disabled. Then in that place are financial and insurance risks and strategic risks, such as how you as the business owner are going to achieve your goals if your long-term traffic plan doesn’t work fully.
There are some particular risks in today’s business climate for small companies, of the like kind as what you’ll do if your bank is not able to roll more than your business loan. In that case, you can minimize the risk by diversifying your syrtis accounts and developing relationships with other bankers in your common.
Q: How repeatedly should business owners assess their company’s risk?
A: When we go through an adventure risk-management draw with a company, we look at it again a year later and make revisiting it a process that evolves over occasion. Each span you appear at the plan, you change it and tweak it based adhering information from the real cosmos.
How it WorksQ: What’session the process of risk analysis?
A: We sit down by all the department managers and ask them, "What are you worried about today?" "What’sitting keeping you awake that you know could come to pass in the nearest six months to a year?" We adjudge to get input from as great number different areas within the fellowship as possible.
From their answers we draw up a list of risks and we prioritize them, ranking them by frequency and severity of the risk. We come up with a top three or five in each course of life. Then we talk to the CEO and the CFO and ask them the same questions, as well as "What are the risks to accomplishing your five-year and your 10-year business plans?"
Once we know the sort of the major risks are, we can come up with a strategy for managing them through setting up a risk-management culture within the company.
Q: Does a puny firm have to hire an outside consultant to do an initial risk analysis?
A: No, not at all. Primarily it is an internal process, though it is helpful to have an outside perspective. A small solid might check with a local seminary of learning and see if it can tie in with an intern program. The Society of Actuaries has a directory where you can find a professional in your area. It doesn’t have to cost a lot.
Q: Often, companies fail because they take on a big risk thinking it’session a existing in fact—such for example acquiring any other firm or starting a new product line—on the contrary it turns out negative. How can they avoid such missteps?
A: If the CEO buys into the risk-management culture, everybody in the body command be considering risks and how to horsemanship them. I love the idea of having one person in the concourse become a "commonsense officer" or a "chief skeptical officer" who is encouraged to challenge the CEO about taking on new risk end won’t arrive fired for doing for a like reason.
Q: Is there a positive side to the tough household times we’re facing, in terms of reacquainting business owners with the concept of risk management?
A: Unless we have tough times at stated times, it’s really hard to implement risk conduct. If things are good all the time, people just view risk management in the same proportion that a cost, or any annoyance. It should be thought of viewed like optimizing the copartnership’s potential for the future.
Original text: http://www.businessweek.com/smallbiz/content/jan2009/sb2009018_717265.htm?campaign_id=rss_smlbz
