How to manage business risk
 

 

Eazipay Director Luisa Grey shares her views on how businesses can manage risk

January 20, 2015

From the day we are born till the day we die, we take risks. We have to, or else we wouldn't achieve anything. Whether it's risking a burned tongue because you can't wait for the day's first coffee, or sending money to someone you haven't met to win money on a lottery you haven't entered, risk is an important part of life.

The skill comes in knowing what the risk is, what the rewards are if it goes well, and the penalties if it doesn't.

In the first example, the risk is a burned tongue, the rewards are a hit of caffeine and being able to drive with your eyes open, and the penalties are walking around with a painful tongue all day. In the second example, the risk is sending money to someone you don't know, the rewards are non-existent and the penalties are losing your money and your friends thinking (correctly) that you are in fact a complete idiot.

The first risk is possibly one worth taking. The rewards probably outweigh the penalties. The second one, maybe not so much.

In both cases, though, it's down to someone to weigh up the risk, identify any potential rewards or penalties, decide if it's worth it, and take steps to minimise the potential damage caused by the penalties.

In the corporate world, this can be easier said than done. Especially when money is tight, it is all too easy to get carried away by the spirit of Del Boy and believe that 'This time next year, Rodders, we'll be millionaires," when in reality the flat in Peckham and a yellow three wheeler is just one bad decision away.

There are, however, a few simple processes you can put in place so that the next time your firm has to take a risk, you'll be more Blackadder than plonker.

Firstly, you need a risk management strategy. This will differ in scale depending on whether you're a multi-national business employing thousands of people, or a self-employed accountant, but the principles are the same.

You'll need to cover a number of issues. Among these will be discovering what is the company's 'appetite for risk level'. This has more to do with where you stand on risk versus reward rather than the likelihood of getting diabetes by eating six cr me eggs in one sitting, although the latter sounds like a lot more fun.

Other components of the strategy could include items such as risk assessments on individual sections of the business, and risk evaluation, where possible risks are compared with the criteria drawn up under the risk appetite.

As an example, at Eazipay we are always getting approached by companies wanting us to take on their Direct Debit collections. Before we say yes, we put them through our risk assessment criteria. Naturally the criteria varies depending whether they are intent on collecting and processing £500 or £50,000 a month through us, but the principle is the same: we've no more desire to get stung than any other company, so we assess the risks and rewards before making a decision.

In addition to drawing up plans to protect the company against the risk occurring, there will also need to be a comprehensive guide in place for what to do if things do go wrong. Whether its nature wreaking havoc, a customer defrauding you, or an employee making a catastrophic error, you'll have to have plans in place to protect the company, in both financial and potentially reputational terms.

But risk management isn't just about a grand, over arching strategy. There are plenty of day to day risks that need assessing as well. Risks in the workplace, for example, to make sure your staff are protected from things such as trip hazards, dark stairwells and their own rank stupidity. Some risks, such as smoking in a fireworks factory, are relatively easy to quantify: (risk = loss of entire stock, penalty = financial ruin, reward = the best fireworks display the world has ever seen.) Others, such as opening emails which turn out to be infected, are harder to evaluate.

Here, the duty of the person in charge of risk management is as much about educating staff as to their roles and responsibilities as it is making sure there are sufficient cable tidies. As such there needs to be regular training on issues such as spotting dodgy emails, the dangers of misusing social media and the perils of skateboarding in the office!

And the guiding hand behind all this? Legislation of course. Even as we speak, there are people who wake up in a sweat that somewhere in the UK there is an unnoticed trip hazard, whose fantasies involve making our lives safer and our workplaces accident free. Are we grateful? Are we hell. But these laws are important and should be one of the cornerstones of any risk management strategy, so take heed.

Luisa Grey is a director of Eazipay Ltd, the UK's largest and fastest growing Direct Debit processing company. Eazipay provides regular Direct Debit collection and processing services to thousands of SMEs and corporate organisations in a wide range of market sectors throughout the UK, Europe and beyond. For more information visit www.eazipay.co.uk

Eazipay Limited are authorised and regulated by the Financial Conduct Authority, number 615816 under the Payment Services Regulations 2009 for the provision of payment services. www.fca.org.uk
The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at www.financial-ombudsman.org.uk

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