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Every day tips for managing everyday risks

Posted in Nigel Milton - The Accountant September , 2012  1 Comments  Add your comment ›

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Nigel Milton - Partner at BDO

Recent natural disasters are a graphic reminder of the importance of sound business risk management. But tsunamis, quakes and flooding aside, have you considered the more likely risks to your business and how to mitigate them and manage the consequences?


Risk management is simply the art of identifying and mitigating risk.  There is a range of risks and management strategies common to most businesses – but your business will have a few of its own.

The starting point is to consider what can compromise the continuity and operations of your business and then how you may mitigate that risk.  Examples include:

• Key person lost – is there a person in your business whose prolonged absence will directly or indirectly result in the eventual demise of the business?  Consider each key person and how you would manage if they weren’t there.  You can then determine what special skills or knowledge they have and hopefully develop a plan to ensure that somebody else is also provided with the knowledge or skills so that you have a natural backup.  If that resource is not internally available, consider where it could be sourced from.  Insurance is often taken over key people, but what is really important is to have a backup plan so they can actually be replaced and insurance is just a way of funding the increased costs.

• Loss of a critical asset – is there a piece of specialised plant and machinery which, if it suffered a major breakdown, would grind the business to a halt?  Determine whether you have other equipment that can perform the task or what other companies in your region have similar equipment where the necessary processing can be done.  They may face a similar risk and you should talk to each other so that a plan can be implemented quickly.

• Data and IT – there is a huge IT industry focussed on this risk.  Companies in central Christchurch that did not have an offsite solution and offsite data storage have learned a very tough lesson.

• Infrastructure – what infrastructure are your operations really dependent upon?  Think deeper than just access to the office or premises.  What is it at the premises which is critical and would need to be saved or duplicated or rapidly recovered?

• Sales channels – Is your business heavily dependent upon one source of sales, be it one main customer or one main referrer?  What are the impacts if this sales channel is lost?  Consider how you can reduce your reliance on a limited source for your revenue.  Consider widening your revenue streams and/or improving the contractual arrangements to make the sources more secure.

• Contract performance – Be careful to ensure you have resources in place to meet your commitments.  Also ensure your contract managers or project managers have the skills and resources necessary to manage the contracts and you have reporting systems in place so that any problems are quickly identified and actions taken to ensure your contract obligations are met and reputation and long term growth and quality are retained.

Nigel Milton
BDO Auckland
Chartered Accountants

BDO House
Level 2
116 Harris Road
East Tamaki

DDI:  +64 09 272 0871
Fax:  +64 09 274 0863
Email:  [email protected]


1 Comments  Add your comment ›

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