Reducing risk is not something that is typically high on many managers' priority lists. They may think that any risk management assessment is a priority for someone else in the company to think about. Then said "someone else" will tell them what actions they need to take within their own department.
But I believe risk management assessment should be the responsibility of every manager. Managers can start by identifying the possible hazards or roadblocks that can exist for the company in the future. Then they can determine the probability of that exact thing actually happening.
Next, the manager can then pinpoint the potential losses if this event takes place. For example, a company can forecast that a competitor will release their own product into the marketplace and the likelihood of its success. As a result, the business might predict it may lose 25 percent of their sales.
Determining possible hazards in every department can be done by reviewing what has happened in the past in similar situations inside and outside of the company. The final part of the risk management assessment is documenting what can be done to lessen the probability of this happening or limit the consequences of the particular hazard when it does occur.
The following is how each departmental manager can start to do their own risk management assessment.
Human Resources
Employee turnover can be a large cost to any company. It can be especially expensive when an employee quits after a long tenure or when individuals don't work out in the first few months.
Managers can review what the company's turnover has been in the past. This can be figured as the percent of total employees who leave voluntarily or get fired each year. While the raw percentage is important, its directional trend is even more important.
A key to reducing turnover is opening up the lines of communication with all their employees so there are no surprises as to how they are performing in the company and where their career is going. You can also examine the effectiveness of the hiring process for retaining the right employees for the specific culture inside your company.
Marketing and Sales
A big risk in this area can be decreasing revenue or not growing sales at the company's budgeted rate.
You can have your marketing and sales manager examine the company's history of sales growth. They can determine what internal and external factors led to the decrease in revenue.
Then you can decide what steps will be taken if sales decrease. This could include ramping up marketing or changing the focus of who is being targeted. Sales headcount could be increased (or decreased) or new products could be accelerated into the marketplace.
Finance
Every year, many companies face the substantial risk of having their profits or cash flow shrink sharply.
Finance managers can look at the elements inside the forecasted profit and loss statement—and the related cash-flow statement—that have the biggest impact on profit. These could be gross margins on certain sales or large customers' payment patterns.
You and your finance manager can decide how profit or cash flow can be maintained if they begin to shrink. This can be done through:
- raising prices,
- lowering costs,
- decreasing inventory,
- changing customer payment terms,
- collecting accounts receivable faster or
- slowing payment of accounts payable.
Operations
A risk that is a bit harder to identify is when the cost or effectiveness of delivering the product or service falls.
Your operations manager can look at the history of product or service delivery over the last three to five years within the organization based on revenue growth, personnel and economic market conditions.
How can the cost or effectiveness of the operations team be maintained if there is a drop off? This can be done by reviewing detailed documentation on how the process currently works through using a customer journey map, which identifies all the key points of interaction.
Product Development
If a company is successful, there is a high probability that another competitor will jump into the marketplace with something that could be superior or perceived as a better solution.
A product development manager can review what has happened in the past to see what may happen in the future given the same market conditions. What products could a competitor introduce in the marketplace? How would your company counter those incursions now or in the future?
Remember, when doing a risk management assessment, after hazards, probabilities and options have been identified, decisions must be made quickly so you can implement the best solutions for your company. It's important to evaluate the effectiveness of the actions that were taken to help reduce additional risks in the future.
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