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A Systematic approach
While the process of assessing and mitigating the many risks facing a business or organisation may feel like a daunting project, it becomes a lot less intimidating when one breaks into a number of manageable projects.
The benefits of a disciplined and systematic approach to tackling highly complex and risky environments are well illustrated in the aviation industry (painstaking pre-flight checklists), formula 1 pit crews and the medical industry (e.g. the methodical approach followed by anaesthetists).
We believe that every organisation can follow the examples above in managing high levels of risk and complexity by adopting a methodical and structured approach to risk and uncertainty.
A pro-active and preventative approach to the management of risk, governance and core compliance will not only materially lower the risk profile of a business but will at the same time:
- Have a positive impact on financial performance (less losses and better business) and sustainability.
- Improve its attractiveness as an employer.
- Improve its standing with professional bodies and regulators.
- Make it more credible for larger contracts or tenders, and
- Make it a more credible borrower to banks, other credit providers and suppliers.
How we do it
Risk is not only unavoidable, but it is becoming increasingly relevant and more complex in the modern business world. It is however almost impossible for the average business owner or manager to get the necessary level of insight into all the potential risks facing their business.
Frankly, we realise that very few business operators have the necessary time and inclination to actively manage risk, given all the other priorities and time constraints in an average business day.
Our goal is to transfer many collective years of experience and learning in the areas of risk management, compliance and general business into practical tools to help entrepreneurs and managers better identify, assess and mitigate business risks.
A general definition is the probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through pre-emptive action.
ISO 73:2009 defines risk as the effect of uncertainty on objectives. According to Wikipedia, risk is in essence the probability that an event will occur. There are risks out there with 100% probability of occurrence that are certain to happen in the future. Risk is really the probability of an outcome not being as you anticipated at the outset.
From a purely business perspective, risk is a measure of the ability and propensity to lose money or capital. As a rule of thumb, the higher the expected return or reward, the higher the risk, and the lower the expected return or reward, the lower the risk. While higher risk investments offer potential for greater reward, this is not guaranteed, particularly over the short term. With lower risk investments, that range is smaller and more predictable, but as you go higher up the risk curve the variance of returns is greater.
With interest rates across the developed world being so low, investors have had to have a re-think about how much risk they are willing to take on. So in order to generate the same level of historic returns, investors have to accept a lot more risk. With money put into bank accounts in the US, Western Europe or Japan, basically earning nothing, anyone who relies on generating a monthly income to live on has been pushed further up the risk curve. The problem investors have, however, is that the real risk of an investment is only known after the fact and that as you take on more risk, you don’t necessarily generate higher returns.
Investing should be about certainty of outcome at reasonable levels of cost. One of the key skills is to identify what could go wrong and establish how much money could be lost, and then look to limit the amount of money that could be lost if something goes wrong.
The world is governed by uncertainty and volatility and this gives rise to never-ending changes in risk.