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7 Ways to Reduce Risk in Your Business

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When little attention is paid to business risks, our organizations can be hard hit. Good leadership involves predicting threats that could emerge and taking steps to avoid and mitigate the impact.  

Controllable Threats 

TreeTime Services Inc. is a leading forest services company in western Canada. The founders wanted to share their extensive knowledge of silviculture (the science of establishing and maintaining robust forests and woodlands) and forest management practices to help Alberta’s forestry companies improve their businesses.  

When established, TreeTime partnered with a key supplier, Coast to Coast Reforestation Inc., the largest supplier of seedlings in Alberta and the second largest in Canada.  

During an environmental scan in one of its Quarterly Planning Sessions, the TreeTime leadership team identified a potential threat in supply of seedlings from third party greenhouses. To address it, the team set an annual priority to mitigate this risk.  

That decision ultimately led to the purchase of their own local greenhouse for seedlings which minimized the supply chain risk and brought more of their supply under the company’s control. 

This story is an example of a leadership team predicting a possible threat on the horizon and took strategic action to avoid it. Would the threat ever have materialized? Would supply have been disrupted? No one knows for sure, but by taking control and ownership of the upstream supply chain, the company reduced the likelihood of supply interruption.  

Focus Areas in Risk Management 

Preventing potential threats can take many forms, and mitigation actions need to suit the particular risk. Leadership teams should regularly assess business risks and take action to reduce or mitigate the threats. 

Here are the common areas to look at when assessing business risk: 

  1. Supply Interruption – as the TreeTime story illustrates, supply interruption from key suppliers can have significant impact on the buyer. When the supplied materials or components are unique and not easily sourced elsewhere, the risk is very high. 
    Many organizations take action to identify supply chain risk by noting which inputs are single-sourced, or available only through a handful of providers. They then seek to lower that risk by developing new relationships with alternate suppliers. Or, as TreeTime chose to do, by vertically integrating up the supply chain. 
    A variation of this is to think about the design process and if some rare component parts can be designed out. For example, a custom battery for an electronic device that is only available from one supplier is at higher risk of interruption than if the design called for a standard battery available from multiple sources. 
    In all cases, these steps help organizations bypass the negative consequences of one non-performingsupplier.

  2. Revenue Loss or Instability – a classic example of a revenue surprise is when a business has few (or just one) customers, and orders stop or drop significantly. Maybe they chose to go elsewhere, went out of business, or simply stopped needing your product or service.

    The nature of your business and industry will dictate how critical this area is for risk management. If you have just one or a few customers, it’s a big deal; losing one customer can have a significant impact. In situations where you and your competitors have dozens or hundreds of active customers, the risk of losing one is less significant. Having more customers means less revenue risk, and companies should always look to expand their sources of income across multiple customers, product lines, and regions.

    Beyond that, another method of loss prevention is to look at the terms and conditions of customer contracts and transactions. Some companies use fixed or longer-term agreements (think mortgages and cell phone contracts), cancelation periods, penalties, or change fees, which make moving to another supplier more difficult. Though these strategies are normal in many industries, they can be perceived as negative or punitive.

    A better approach can be to take a more active role in ensuring the success of your customers. This is Business 101 – every seller should be providing its offerings to help their customers be more successful. And the more intimately a supplier can understand their customers’ needs and challenges, the better they can adapt their own products and services to help their customers win.

  3. Loss of Key Personnel – by understanding the new model of employment and what people are looking for today, leaders can create environments, cultures, and systems to retain the right people and ensure they perform to their highest potential. A magnetic culture with well-trained managers reduces and avoids surprising departures.

    Further, where possible, Talent Mapping can help leadership teams see where there are opportunities for cross-training and succession planning so that if a key employee departs, decisions have already been made about how to close that gap.

    Loss of Key Personnel
  4. Health and Safety – nearly all industries have health and safety procedures to be followed to prevent injury and incidents. These protect employees, customers, assets, materials, the environment, and the public.

    In many industries, health and safety systems are mandated by trade associations or government bodies. We have worked with many clients in the construction industry where specific safety protocols must be in place and may be audited for a site to remain open and people to be working. 

    Leaders need to ensure they know and comply with (or exceed) the minimum requirements for their specific industries.

  5. Financial Risks – the cash register was invented and patented by the Ritty brothers, James and John, in Dayton, Ohio in the late 1800s. Their first model was called Ritty’s Incorruptible Cashier, and its purpose was to prevent employee theft and embezzlement in the saloon they owned. The idea caught on and demand for the contraptions grew.

    Many loss prevention tools are physical like cash registers, safes, lock boxes and night drops, while others are process driven like the requirement for two signatures on a company cheque.

    Just like in the realm of health and safety, many industries have rules and third-party regulators to govern financial risks – investment companies, banking, insurance, and mortgage brokering, just to name a few.

    All organizations can and should prevent financial losses by formally clarifying the authority different individuals have over company assets and resources. How much can a department manager spend without seeking senior approval? What contractual obligations can an employee make which binds the company (amount and duration)? These and other policies protecting financial resources need to be clear and complied with.

  6. Error Prevention – errors can be expensive and sometimes even life threatening. For example, in the provision of medical treatment, patient identification errors have resulted in people receiving the wrong remedies or medications. Or worse, there have even been cases of wrong surgeries. This has been significantly reduced in recent years thanks to now standard protocols being followed.  Every step and procedure begins withidentification; if you have a surgery scheduled, be prepared to repeat your name and birth date at every step.Preventing and minimizing the chance of errors is addressed by having and following clearly documented processes and procedures. There is no one “right way” to document processes, and it depends greatly on the complexity of the process and the desired level of analysis and improvement required. A simple checklist may be adequate when dropping a pet off at a kennel, while several volumes of description and process map documentation may be required for a natural gas processing plant.

    “As long as the documentation technique assists someone in comprehending a subject, it has served its purpose.” Craig Dewalt, John Hopkins University

  7. Brand and Reputation Risks – as the saying goes, bad news travels fast. That’s never been more true than today in our interconnected world. Valbella Meats, a Canmore Alberta producer of high quality sausages, hams and charcuterie products, learned this the hard way.

    In the summer of 2022, the owner of Valbella responded to a request for donation from an LBGTQ+ community with a vindictive, trans-phobic response by email. That email was posted on social media and the response resulted in Valbella losing support of many customers and key distributors almost immediately. A formal apology from Valbella was posted but it was too late and the damage had already been done.

    Prevention of a public relations debacle like this starts with realizing that more than ever our behaviors and communications are public. Even private emails and text messages can end up in the public domain in seconds for all the world to see. All employees, and especially leaders, need to be mindful of what they say and do.

    Differing opinions are extremely valuable and should be the subject of healthy and constructive debate. But there is no place for verbal mudslinging or any messaging that disrespects any group, community or individual.  

There are entire volumes and comprehensive lists of threat prevention strategies. Leaders should look to apply all that could avoid or reduce the likelihood of those risks deemed to be high priority. 

Unleashing the Potential of Your Organization 

Uncertainty is here to stay, and savvy leaders need to make risk assessment and mitigation an ongoing part of their planning processes. 

If you’d like to learn more about how reduce business risk, or other ways you can take the simpler path to creating a great business, connect with us or consider attending one of our upcoming leadership events.