Give your firm a timely health check
Last updated at 12:36, Saturday, 29 March 2008
There has been much reference in the media recently to the lack of risk assessment (sometimes termed stress testing) undertakeen by a certain well known financial institution.
While the impact on that business’s future operations, and indeed on the entire UK financial market, is now clear, it does demonstrate the need for businesses, whatever their size, to undertake a regular business risk assessment.
What is business risk? It is the threat that an event or action will adversely affect a business’s ability to achieve its ongoing objectives.
In other words, ask yourself the question: “Are there any areas of my business, either internally or externally, where there is the risk that something untoward may happen which could badly affect it?”
Many people in business, especially those who run owner-managed businesses, would immediately reply: “Of course not, I know my business backwards and if there was a risk that something might go wrong I would know about it immediately.”
Maybe so, but it is surprising what you can learn about your business by standing back and taking a fresh look at it. Sometimes owners become so close to their business that they can’t see the wood for the trees.
What does a business risk assessment do? It is effectively a ‘health check’ on the business, carried out in some cases by a third party.
The following are some suggested areas you may wish to consider if risks exist or there are areas for improvement:
- The external business environment
- Changing legislation
- Changes in interest rates
- Price wars with competitors
- Environmental factors
- Natural hazards – fire, flood, storm damage.
Each of these can be looked at on a ’what if’ basis and forecasts can be made as to what effect each of these could have on the following business areas:
The internal business environment
- Particular products or services
- The process of dealing with suppliers and customers
- The maintenance of adequate cash flow, and/or availability of sufficient longer term funding, eg mortgages/loans etc.
When carrying out a business risk assessment, the first task is to identify the risk areas. Then quantify and evaluate the risks before considering how to control them.
Finally, having itemised areas of potential risk, the various courses of action which might be considered should be drawn together.
In summary, a business risk assessment may reveal certain risks within your business which you never knew existed.
Interestingly, the same considerations and objectives apply to a domestic setting. The general principles of running a household can be little different to running a business (give or take a few extra noughts!).
So within this article, simply replace any reference to ‘business’ with the word ‘household’ with a view to identifying areas of potential risk within your home environment.
Whatever the background therefore, do take some time to undertake a business risk assessment.
It may prove an extremely valuable exercise.
- Bill Smith is commercial lending manager at the Cumberland Building Society. Visit the website at www.cumberland.co.uk.
First published at 12:28, Thursday, 24 January 2008
Published by http://www.cumberlandnews.co.uk