When I was a risk manager there were times I sat with the executive team planning for the future and an idea would be presented that prompted many “what if” questions. A lot of heads would shake and, occasionally some would ask, “Do you have to be in the room?”
Here are some of those questions:
This is an Opinion
► What if our servers completely crash and we can’t operate for a time?
► What if there is a market crash and our investments take a hit that requires months, or even years, to reach a recovery point?
► What if hiring practices we’re considering lead to disgruntled workers?
► What if there is a pandemic that results in our business being shut down for a long time — for instance, one to six months or longer?
These questions were asked to determine how the company would respond to potential business-disrupting situations. These are low-frequency occurrences that would have a high impact. And this is exactly where many businesses are living today.
Life has certainly changed during the last few months for many, if not all, businesses in our city, state and nation.
Before the pandemic, first reactions to the questions we discuss today were, “Oh, that may happen in some other country, but it won’t happen here.” Well, it is happening here, and these uncertain future risks exist.
The first step in addressing these risks that might happen is to consider that these risks can happen and have happened. Think about events just in the last 20 years that have drastically affected the ability to conduct business in the United States, among them:
► The terrorist attacks of 2001,
► Hurricane Katrina in 2005,
► The housing market crash in 2008,
► Hurricane Sandy in 2012 and
► A pandemic. The Sept. 21, 2020, issue of Arkansas Business noted that 97,966 U.S. businesses have been reported by Yelp to have closed operations permanently between March 1 and Aug. 31, with restaurants and retail businesses being the hardest hit.
Identify future risks.
As anyone who is familiar with risk management knows, the first step in managing risk is identifying what risks a company, or an individual, can encounter. When a risk manager — and I use that term loosely since a risk manager may be an individual, the sole proprietor of a small business or the actual risk manager in a large corporation — begins to identify the risks their company is likely to face, consideration should be given to these uncertain, remotely possible, future risks. Nothing should be off the table.
Now, does this mean that action will be taken for every risk contemplated? Well, it actually does since a decision to do nothing is a decision; however, at least the risk will have been considered. Keep a file or a notebook containing a list of these risks even if there is only a remote possibility that the event will actually happen.
Evaluate the effect of future risks.
Once you consider your most pressing risk issues and begin to evaluate the effect these events can have on your ability to operate, go back to that remote possibility list: an earthquake, civil unrest, market issues, pandemic. Evaluate those as well as the imminent risks that must be responded to quickly.
Since we know the frequency of these events is low, evaluate the severity. Considering these risks may be what prompts a business such as a small restaurant to create an online presence. The restaurant begins with an inexpensive website offering location and contact information and maybe a menu. In the event of a situation like the current COVID-19 pandemic, the ability to move to an online ordering and delivery option may prove to be what keeps the company operating past this uncertain future risk, a risk that has actually occurred.
Never sell short the action of considering those uncertain future risks that, while remote, could close your business. These can also be the discussions that lead to great growth opportunities that can place you well ahead of your competitors, whether or not these unique risks ever occur. Never discount the importance of managing risks, even those that may never happen.