Posted by on Sep 28, 2017 in Business | 0 questions

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Your business faces an enormous number of risks. There are legal, regulatory and economic risks that threaten its operation and could ultimately end the business if severe enough.

The nature of risks is also changing. In the past, companies were mostly worried about physical risks to their businesses: that is risks which directly threatened their property. But with the rise of the digital, interconnected economy, that’s changing in a number of interesting ways.

The first change is that physical assets are becoming less relevant and easier to manage. Sophisticated insurance products have now largely eliminated the risk that holding physical assets and capital brings. And the digitization of business now means that the value in business has shifted. Whereas once the most valuable companies in the world were those with the most capital, like GE or GM, today it’s the digital behemoths, like Apple and Google.

The second change is that the global economy has become far more integrated. Whereas in the past companies could diversify risk by moving some of their operations overseas, today nowhere is free from the ravages of recession. When the global economy went into recession in 2009, all the major economies were in sync. Unlike in previous recessions, they all moved in the same direction in unison, meaning that global companies couldn’t recoup losses in some markets by exploiting opportunities in others. Major corporations were virtually bankrupt, and many only escaped failure because of government assistance.

The third change is in the regulatory environment. According to sites like managing things like compliance has become a lot more difficult. The rate of increase in regulatory risk companies face is now reaching breakneck pace.

So what are the secrets to managing risk?

#1: Adopt Risk Management Framework

Most major companies have a risk management framework. For example, the building company Skanska has a highly developed framework involving the CFO and COO. As a construction company, it’s usually one of the first to experience a downturn, and so it’s developed early warning systems and the ability to react to changes in the macro environment quickly.

#2: Calculate The Biggest Threats

Not all companies face the same threats. Some businesses are sensitive to regulatory dangers, while others need to keep an eye on economic fluctuations. Online businesses also face unique digital threats. Your company needs to make sure that it knows and can accurately identify the risks that it faces. Then it needs to come up with a plan to mitigate them, just in case the worst does happen.

#3: Audit Your Current Risk Management Strategy

There’s a good chance that your business already has a risk management profile – that is, it’s likely that you’re already doing something to mitigate risks. But often companies don’t know exactly what. And if they don’t know what, then they don’t know how to build their risk management capability. It’s a good idea, therefore says to conduct an audit to find out what you’re already doing and then build on that.