Navigating the world of business is not without its challenges.
Every day, we hear warnings in the news about various threats and trends in the business landscape.
As a family business owner, understanding and managing these risks is essential for long-term success.
But where do you start?
How do you identify, evaluate, and mitigate business risk?
In this article, we will present our best advice for navigating the sheer breadth and complexity of these critical business risks that may change often and can run the gamut of both financial and non-financial matters.
What Are the Top Business Risks Today?
Here is a snapshot of the most pressing business risks in January 2023:
- Business Interruptions: This includes disruptions in the supply chain.
- Cyber Incidents: From cybercrimes and malware attacks to data breaches.
- Macroeconomic Changes: Think inflation, monetary policies, and other broad economic shifts.
- Shortage of Skilled Workforce: Not having the right talent can be a setback.
- Natural Disasters: Storms, floods, earthquakes, and more.
- Fire or Explosion: Accidents that can have devastating effects.
- Energy Crises: From supply shortages to unpredictable price changes.
- Climate Change Effects: This can affect many aspects of business operations.
- Changing Laws & Regulations: Such as trade wars or economic sanctions.
- Market Changes: From increased competition/new entrants to market fluctuations.
For many, these risks can feel overwhelming.
Especially since very few senior business management teams have the technical knowledge, experience, or risk management training to adequately prepare and manage a risk management program for such a wide number of issues.
This is where a cross-functional approach can be indispensable.
Why Cross-Functional Teams Are Your Best Bet
By bringing together diverse expertise within your business, you can tackle these challenges head-on. This approach is called cross-functional risk management. Here is a simple breakdown:
Develop a risk identification, evaluation and mitigation management process that will best leverage the INTERNAL resources available to the business.
Aim to create a documented system that uses the skills and knowledge of your team to its fullest.
Identify and define the different risks facing your business – both internal and external.
Ask questions like:
- What could go wrong?
- Who would be affected?
- Who should manage it?
- Is it preventable or unavoidable?
Classify risks as:
Begin with an impact assessment of each risk.
- How likely is it to happen?
- What would be the consequences?
Then develop strategies.
- Confirm and set priorities about which risks you will address now and which you will only monitor.
- Find ways to reduce or manage risks that have a medium or high probability.
- Look for ways to avoid or to transfer the risk. For example, by getting insurance.
- Consider which risks you might simply choose to accept due to their minimal impact.
The intention behind risk mitigation is to reduce the risk by minimizing the impact of the risk if it does occur. Conduct scenario planning exercises to simulate potential risk scenarios and stress test the effectiveness of the mitigation strategies.
Here is how to take a cross-functional approach to risk mitigation:
- Involve all stakeholders in the business – from employees to shareholders. They might see risks you had not thought of.
- Foster a proactive risk culture. By promoting a culture that is not afraid of risks, you can set the tone for compliance, attention, and action to be taken.
- Communicate plans clearly and regularly. Make sure all responsible parties know what they are accountable for doing.
- Monitor and adapt. The business world is always evolving, and so should your strategies. Use risk mitigation tools to assess and provide metrical trends.
Having a cross-functional approach ensures that all parts of your business work in harmony.
It involves identifying, assessing, and mitigating the potential threats and opportunities that arise from the interactions and dependencies between distinct functions and levels.
Cross-functional risk management matters because it helps you align your efforts and resources with your vision and goals.
It also enables you to anticipate and respond to the changing needs and expectations of your customers, stakeholders, and regulators.
A well organized and communicated cross-functional risk management process can be a cost-efficient and sustainable model for business risk management.
Need a Helping Hand?
At Ferguson Alliance Family Business Advisors, we are here to guide and support you. If you are considering implementing a cross-functional risk management strategy or just need advice, we invite you to get in touch. You can book a call here: Book a Call