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. It’s a risk that is possibly worth taking. The rewards probably outweigh the penalties. The second one, maybe not so much. The rewards are non-existent and the penalties are losing your hard earned money.
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 in the current economic climate when money and business cash flow is tight.
There are, however, a few simple processes that can be put in place to ensure you minimise any risk at the outset.
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. The principles, however, 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'. 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, overarching 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 slip and trip hazards or dark stairwells. Some risks, such as smoking in a fireworks factory, are relatively easy to quantify: risk = loss of entire stock, penalty = financial ruin, (reward = possibly 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.
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? Probably not. 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, one of the UK’s largest and fastest growing automated payment processing companies. 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