The best time to mend a fence is before the ox has broken out . A wise farmer goes around the farm regularly , looking for weak links in the fence and repairing it before a costly event happens . Management wisdom is the ability to conduct risk audits and reviews and implement recommended actions to mitigate risks . sales for an organization , which should call for immediate senior management ’ s attention .
CROSSFIRE
Identifying And Managing Risks Tops The Priority List In The Face Of Change
By Herman Githinji
Senior management ’ s main task is scanning the environment for risks and opportunities . Progressive internal audits should not only focus on financial but also strategic , operational , and tactical risks .
Strategic risks and opportunities are significant because they assure the company ’ s long-term survival , sustainability , and growth . To explore the realms of possible risks and opportunities , a manager must ask probing questions that may not have immediate and definitive answers .
The one question that I usually ask to understand possible strategic risk is : “ What can happen that would make this company shut down ?” Fire and other external acts of God quickly come to mind , plus other external factors and events .
But strategic risks can also emanate from how the company ’ s internal operations are structured and managed . While strategic risk is high in the probability of happening and the scope of the loss , operational and tactical risks also exist but may pose a minor threat to the company ’ s survival .
For example , the nature and extent of credit given to customers may cause a critical strategic risk . While the total credit exposure may be a risk , a higher chance exists when a few customers contribute to more than 60 percent of the total credit exposure . The strategic risk in this example may be based on the whole credit policy and management structure .
Operational risk in credit management may emanate from how customers are profiled for credit and managed within the agreed terms . The tactical risk may arise due to how customers ’ orders and communication are managed daily to ensure compliance .
Risks could also be in the way our customers are structured . In a company I worked for , more than 30 percent of sales came from one customer . The revenues from that customer were equally significant . When I joined the company and noted that , I quickly pointed to senior management the risk it presented . A strategic risk exists when one customer contributes more than 20 percent of total
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The best time to mend a fence is before the ox has broken out . A wise farmer goes around the farm regularly , looking for weak links in the fence and repairing it before a costly event happens . Management wisdom is the ability to conduct risk audits and reviews and implement recommended actions to mitigate risks . sales for an organization , which should call for immediate senior management ’ s attention .
Relying on one product or revenue stream may also pose an equivalent strategic risk . Identifying and managing such risks results in survival , growth , and sustainability of the business .
Sustainability requires senior managers to ask the “ what if ” questions . What if that key customer stops buying ? What if that primary debtor is unable to pay ? What if that key staff leaves the company ?
Talk about the staff . Some employees , roles , and their importance to the company ’ s survival can be a strategic risk . Several years ago , there was a classy restaurant at Lugogo in Kampala , Uganda . They , unfortunately , build the entire menu around the chef . The food was superb when he lasted . When he left , the restaurant closed . The restaurant was the chef , and the chef was the restaurant . How and why on earth was that allowed to happen ?
Building essential strategic functions around specific individuals is a common but hazardous practice . Noticeably in the medium-level owned businesses , managers who have worked since inception or for donkey years will hold onto significant strategic roles that only they can do and pose a perilous strategic risk to the outfit . Management should reallocate critical strategic functions to more managers to alleviate staff-related risk .
The risk posed by technology is on top of the list of critical and probable threats that may make a business or the whole sector redundant quickly . When
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