By Alvin E. Terry, MBA
Business Consultant, Dynamic Business Builders
If You Don’t Manage Risk, It Will Manage You!
Risk is inherent in all Business Ventures. That is why we engage in the risk/reward scenario to see if we can win at the game. Just thinking about going into business is a risk in itself. It is a risk because you have invested time, money, energy and intellectual capacity just in the formulation of your idea and its manifestation. Hopefully after investing all of those resources it will not be an exercise in futility, but a dream that has come true with all of its’ splendor and rewards.
As we manage our companies we must manage ourselves. We must put in place our own rules, regulations and standard operations procedures that will serve as guidance tools and a road map to keep us on course. We must conduct assessments to identify our risk exposures, and adjust to those assessments that are out of our tolerance levels.
Managing liquidity is our ultimate goal. Staying solvent is an ever-present engaging mind activity that persists on a daily basis. It is essential that you have your team in place to give you timely feedback when you need it. This team may be internal or external.
All risks cannot be mitigated at all times but managing them is a necessity. Identifying the types of risks that you will be bombarded with can be defined as follows:
- Strategic Risks: Risk that can result from adverse business decisions, inappropropriate business plans, ineffective business strategy execution or a failure to respond in a timely manner to changes in the macroeconomic environment.
- Credit Risk: Risk of loss arising from the inability or failure of a borrower or counter party to meet its’ obligations.
- Market Risk: Risk that value of assets and liabilities or revenues will be adversely affected by changes in market conditions.
- Liquidity Risk: Risk that has the potential inability to meet contractual and contingent obligations both on/or off balance sheets as they come due.
- Operational Risk: Risk of loss resulting from inadequate or failed internal processes, whether from people, systems or external events.
- Compliance Risk: Risk that arises from the failure to adhere to Laws, Rules, Regulations and Internal Policies and Procedures.
- Reputational Risks: Risk that has the potential that negative publicity regarding an organization’s conduct or business practices will adversely affect profitability, operations or customer base. This can incur costly litigation or other measures.
“Transparency” is the key in managing. It is the most critical component in effective “Risk Management”. Everyone in the organization must be on the same page. Everyone must know and understand their roles and how it affects the bottom line for all.
You may contact Alvin E. Terry, MBA at 713-392-9107 or by e-mail, alvin.terry@rocketmail.com
