The risks you’ll face as a business will change constantly based on the market (new competitor, new product), the organization (international expansion strategy, acquisition of another company, initial public offering), products (product obsolescence, major recall of a defective product), etc. As such, risk evaluation should be built into your structure, and ideally have a person on your team dedicated to risk management.
In a 2015 study on the state of enterprise risk management in Canada, 61% of respondent organizations reported not having a chief risk officer or equivalent. Without someone tasked with evaluating and managing emergencies, management at these companies are in danger of not having the best possible solutions to evaluate in cases of emergencies, which will lead to ill-informed decision-making and bad choices.
If you don’t have a risk management officer, have a risk management process
You’ll never eliminate all the risks your company faces, but you can minimize them with a five-step risk management process:
- Identification — What’s out there that could pose a threat to your company?
- Assessment — What is the probability of the threat becoming a reality?
- Mitigation — What can you do to address the threat?
- Implementation — What are the steps necessary to address the threat and how will you take those steps?
- Follow-up/re-assessment, as necessary — Has the threat been neutralized? If so, how long will it stay neutralized? If not, what about the plan has to change?
Contrary to what you might think, risk management doesn’t have to be an expensive or intrusive process. It can be as simple as, periodic maintenance of machines to prevent damage, obtaining an exchange rate contract to mitigate volatility or an extra round of due diligence before making an acquisition.
Do you have a risk management process?
When was your most recent risk assessment? Who was privy to the results? Are front-line employees as aware of the company’s risks as upper management and the board of directors? And if they’re not, what are you doing to change that?
If you’re having trouble answering any of these questions, contact a DMCL business advisor.
This article is from the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America. These articles are meant to pursue our mission of being the best partner in your success by keeping you aware of the latest business news; Contributed by Jacqueline Lemay, CPA, CA, CA-EJC, CFF, Demers Beaulne