Things are tough all over: Europe is stumbling on the edge of recession—again—the emerging markets seem to have, well, stopped emerging. While North America is recovering, its innumerable connections to the rest of world means risk to your business will be always there. So how do assess risk without investing pricy software or experts? Start with a simple exercise known as creating a “risk register.”
Then you can organize it in a variety of ways. The Project Management Institute (PMI), a global association of project, program and portfolio management professionals, advises keeping it simple and keeping it in perspective. There are all kinds of risks—earthquakes, terrorism, bank crises—and you can’t avoid them all. To try to avoid all risk can drain your pool of business opportunity, so it’s essential to understand risks affecting your business and to a risk register to prepare for potential blow-ups.
Start with a blank sheet of paper or a simple spreadsheet and start listing the most pressing risks your international business could be facing. These might include credit squeezes on your global suppliers or clients. Are you concerned in the current economic climate that some of your clients will default on paying for your goods? Put that into your register. What about shipping problems—would that affect your ability to do business? Or is intellectual property theft a major concern?
Try creating two axes along the edges of the register: One for likelihood and the other for impact. Then you can start to put your various risks into a perspective. For example: would a banking crisis in southern Europe affect your sales? How likely do you think that could happen, and what steps can you take now to avoid being slammed by an Italian or Cypriot bank failure? Remember, however, that if a Cypriot bank failure wouldn’t directly affect your business don’t include it.
Risks don’t have to be cataclysmic—your register can include issues such as delays caused by customers revising their accounts-payable policy arbitrarily, or the effects of staff turnover at home and in any foreign branches you may have. But Jamie Paddon, head of internal audit in the risk management and assessment department of Radius, an international business-process firm, warns that too many firms throw everything they can think of into a register, muddying their thinking on what really matters. True, frequent power failures in Nigeria can have an effect on your business there, but is it really something that could cripple your business?
Once you’ve written out the kinds of risks, their likelihood and impact, decide which risks would keep you up at night then write out ways to address them. If you think that a client in France may stiff you but you really want the business, mitigate the risk through export sales insurance. If you fear that one of the participants in your international supply chain may be a bit wobbly, get a credit check done on them ASAP. If they don’t look healthy, change your supply chain partners as needed sooner rather than later.
Paddon says that some companies attach scores to risks on their registers to determine how much time, energy and resources to throw at particularly risks. But small firms should be able to gut check their problems without resorting to scoring. Similarly, you can buy software from companies such as SAS, which will help with modelling risks, but again, decide whether your operation is complicated enough to warrant the expense.
The PMI produces many books to help you understand risk management and how to optimize a risk register. It advises that as your business grows and you take on whole new projects, you should create a separate risk register for each one. A risk register can be as important as a detailed budget on the new project. Kareem Shaker, senior manager for project and enterprise risk at Dubai World, writes: “The biggest risk associated with breakthrough projects is failing to identify the right risks.”
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