Managing risk is critical for maximising growth. A well-prepared business is in a better position to make informed decisions and take advantage of opportunities. Many risks could threaten the success of the business. Social, economic, technological and regulatory risks could restrict your company’s potential growth and result in higher opportunity costs.
Managing risk allows your organisation to adapt to the rapidly changing business environment and gain a competitive advantage. Companies are always competing to innovate the next big hit or update current services to attract new customers. However, every single activity involved in growing your business comes with risk. The risk comes either from the opportunity not having a positive outcome or other elements associated with it, such as the risk of cyber-attacks when operating online.
Managing risk is not simple
When growing, managing risk becomes more complicated. The risk management process needs to be adapted to technological changes, increasing profits and increasing staff demand to enable growth. Risk management focuses on identifying, assessing and mitigating threats. Managing risk to promote growth could include:
-Keeping track of costs
-Staying up to date with technology
-Evaluating risk appetite
-Meeting customer demands
Keeping track of costs
When growing, it is likely that revenue will increase and the business will look to expand or invest more money into certain areas. Managing risk during this period can be more complicated. Managers may underestimate the costs related to those decisions or they might focus less on reducing costs. Even with high revenue, cost control is essential to achieve the maximised profit. The inability to reduce costs could potentially lead to slower growth and missed opportunities. To manage this risk, businesses should prioritise cost reduction and control even during periods of increased revenue.
A cost-benefit analysis is important when deciding whether or not an investment is worth it. A cost-benefit analysis looks at all the benefits associated with a decision against the costs required to implement that decision. A cost analysis, along with effective budgeting and forecasting can prevent an overly positive outlook. Instead, the company will have a realistic idea of how its costs impact its profit and can develop strategies to minimise them. Just because the business is doing well now, it does not mean it will continue to grow at the same rate in the future so management needs to be prepared.
Expansions need a lot of planning and collaboration. Many things within the business will change which could potentially leave the company vulnerable. Tasks and budgets have to be created after speaking to employees to encourage better solutions and gain a clearer idea of what details need to be addressed. New policies may need to be created and individuals could potentially change positions within the company to ensure that the right person is chosen for the job.
Growth could impact work culture which is why employers need to prioritise how the staff are being treated during the whole process. Are they feeling heard? Are they satisfied with their work or are they overwhelmed? Management must listen so the objectives developed during the growth period are taking staff into consideration.
As a business is growing, more staff may be needed. Understaffed companies are at risk for a lower quality service and flawed production of goods as there are not enough employees to complete every time by the deadline. Managing risk during expansion involves identifying areas where more staff members are needed and which departments need updated infrastructure. This will ensure that all operations are running smoothly and efficiently and not stalling growth.
Staying up to date with technology
Technological trends are one of the main drivers of business change. If the business fails to keep up with technological advances then they are more likely to lose a percentage of their customers and reduce workplace efficiency. Customers are always looking for the next best thing and what is the most affordable and innovative product or service. If the organisation adopts the latest technology, it will be more efficient in daily tasks and research and development.
The company should look at what technology the competitors are using and assess the risks associated with not upgrading. Why are new devices needed? How can they promote growth? Every change should be implemented carefully to ensure that it aligns with organisational objectives.
If new equipment is not seen as necessary, then training the employees is an effective way to implement new knowledge into decision-making. This is a step companies neglect but the commitment to training and development can be beneficial not only in the short term but the long term as well. It can lead to sustainable growth and greater performance management. This will also minimise the risk of high employee turnover as employees are given opportunities to advance their careers.
It is important to remember that staying up to date with technology has its own risks. Management may not plan appropriately the implementation of new technology, which can lead to unrealistic goals and disorganised training. Staff need to be given enough notice and the skills necessary to manage the technological advancements. Risk assessments need to be conducted to detect any potential risks with adopting new technology and strategies need to be prepared to ensure that everything is rolled out smoothly. If the new technology is not properly implemented, then the staff may accidentally misuse it or management may become complacent, even though it is a task that requires continuous improvement.
The most difficult part of managing risk in an organisation involves monitoring various departments, conducting risk assessments and audits that can detect fraud or other illegal activities. Growth leaves the business more vulnerable to fraud as many things emerge that require attention. As resources are focused towards sustaining the increasing business success and more employees are hired, there are many gaps that criminals can take advantage of.
All companies can be victims of fraud, no matter their size. When an organisation grows, higher invoices are expected, more money is allocated towards different services but in the worst case scenario, the business never receives what it pays for. Instead, the money goes to the employee. As Apple was growing between 2011 and 2018, an employee defrauded it of more than $17 million USD. This case highlights how no one is really safe. It might seem impossible for someone in your company to act with ill intent but it is more common than one might think.
Managing risk, especially fraud, can be complicated. Even when expanding, the organisation should have a clear strategy on how to handle fraudulent activities and high fraud awareness. It should have systems in place to detect illegal actions and a team dedicated to uncovering such activities. A whistleblower line is encouraged as employees may not feel confident enough to report misconduct directly to a manager.
Meeting customer demands
Increased sales of a certain product or service may give the business the illusion that customers will keep buying the product without them needing to modify anything. However, the opposite is usually what happens. During growth, the business is managing old and new customers. For many individuals, this stage will be the first time they interact with the company. Not emphasising customer service and neglecting to monitor customer behaviour, sentiment and expectations could be detrimental for the entity. The business needs to listen to customers and have them as a priority as they are the ones who are enabling them to grow.
Managing risk hugely involves managing customers. What customers say about the business, what they want from the product or service and what is necessary to retain them are three key areas the company should focus on. Growth does not mean that the company should relax and or let its guard down. There is always the risk of a customer having a bad experience. When customers have a positive experience, usually 1 or 2 people will hear about it. When a customer has a negative experience, they will share it with at least 5 people and discourage them from trying out a brand. As a result, a lot of the market share is lost to competitors.
Evaluating risk appetite
To achieve continuous improvement, the managers should assess both the external and internal environment for risks. Managing risk requires the company to know what its risk appetite is. Risk appetite refers to the amount of risk that a company is ready to accept to achieve its objectives. Risk is not something that can be avoided when operating a business. Every decision carries some level of risk and businesses should not let low risks deter them from pursuing growth. Therefore, analysing the risk appetite is important in order to make better and well informed strategic decisions.
Stakeholders should be involved in discussing risk as usually employees are the ones that see the impact threats have on the company. When explaining risk appetite, management should try to simplify terminology so everyone can understand what is being said. A collaborative approach can assist the business in determining how risk appetite can affect its goals and growth and contribute to a better long-term strategy. Higher risk appetite means that the organisation will be able to take riskier opportunities as they have the ability to do. A low risk appetite indicates that the company should limit riskier opportunities which could potentially slow down its growth.
Managing risk to enable greater growth is easier said than done. There are many areas that will require a lot of attention and the business will need a lot of resources to manage its success in a sustainable way. Every business will need to retain its productivity levels and increase them while minimising costs.
At Polonious we understand the stresses that come with operating a business. That is why we offer our customers a high-quality service that allows them to fill out online risk assessments to save time and money. Our clients manage all risks in one place and can link all relevant assets or details to a specific case so they can keep track of it easier. Polonious can simplify your processes and automate certain procedures so you can focus on your core responsibilities. If you want to know more about how we can help you grow while managing risk, reach out to us!
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