45 www.ceotodaymagazine.com IMPROVE B2B product line with a projected loss of earnings of £1million. Probability can be estimated from historical data you have and or external sources of statistics available. And of course experience. Identifying and understanding risk is one thing, but being able to know how to deal with it effectively? That’s how businesses conquer their sector. Now here’s where it gets really fun. The Two Components of Risk Management: What could go wrong? And What Can We Do If it Goes Wrong? Once we’ve determined how likely a risk is of occurring and the potential impact of the risk, we can start looking at solutions. Take off our “worried mother” cap and replace it with your “I’m the James Bond of Business” one and figure out all the potential solutions. A life long belief I have is when we ignore opportunities they don’t disappear, they simply go to others, but when we ignore risks they grow. It’s basic maths, if you have a probability of an event occurring in a given period and you extend the period, the likelihood of it occurring can increase. You continue to roll the dice. Most of you reading this will have heard of the “4 Ts” in Risk Management, which I’ve put in my “matrix of risk approach”. I would say more than 80% of the time the risk approach will follow this pattern: TOLERATING – We accept the risk as negligible and / or cannot be mitigated cost-effectively and move forward. TREATING - This is the most widely used approach. The purpose of treating a risk is to continue with the activity which gives rise to the risk, but to bring the risk to an acceptable level by taking action to control it in some way through containment actions, reducing the likelihood or consequences of a risk applied before the risk materialises. This might be using audits for sole source suppliers and red flags when suppliers ask for early payment. Also the introduction of a new second source supplier, even if they are more expensive and serve only 10% of the demand, could potentially cut switching time to weeks not months. TERMINATING Simply not accepting the risk or associated project. TRANSFERRING - Transferring some aspects of the risk to a third party, EG via insurance, or by paying a third party including the vendor to take the risk in another way. This is also an excellent way to get a professional to assess the risk and put a price on it. If no insurance company will touch the risk or the premium is so large that any potential profit from the deal would be consumed, then this gives a clear indication that perhaps the best way forward is to terminate. The Next Steps Effective management of risk is one of the key defining factors in the businesses that I’ve helped grow and protect profits. Your organisation’s ability to identify the risk landscape and make effective logical decisions is what takes a business to the next level. Richard Branson is an excellent example of someone who takes risks but regularly comes out on top (probably because he follows the exact methodology above). You focus on applying the following principles: 1. Get a little paranoid about all the things that could happen in a project, deal or your business. However, do not get overwhelmed, negative, discouraged or in ‘paralysis by analysis’ mode. This process should not take weeks and months; it is an iterative process that can be completed initially in a few days or less for a small business. 2. Get creative about handling risk. 3. Terminating a project or activity where the risk is considered too high is a valid form of risk management - it is also a good cure for insomnia. Jonathan Watt is an 8th generation descendant to the world-renowned inventor genius James Watt. Today, Jonathan Watt, also a born engineer, spends his time solving problems for his business clients who are based at home and abroad. As well as bringing practical and pragmatic, he is able to provide his insight to increase businesses’ revenues. He is an expert in supply chain management, manufacturing, energy, batteries and electric vehicles. In addition, he consults firms on sales forecasting, risk management and minimising operational costs. And because he’s one himself, he can tell you exactly how to make sure you are getting value from your management consultant. Jonathan Watt empowers multi-million-pound business to accelerate growth, automate sales systems, and protect profits. Low Impact Low Likelihood Tolerate Transfer Treat Terminate High Likelihood High Impact
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