Three Big Mistakes to Avoid at the Start of the New Year.

The Christmas Holidays are often a good time to relax, enjoy yourself, spend time with friends and family, think, read, prepare for the demands of the New Year, or any combination of these, benefitting us in our personal and professional lives.  However, there are three dangers we all need to look out for, especially if we are in business, or this can turn out to be a time to look back on with regret.

Getting away from it all too much!  We can so enjoy the break from work that we do not come back refreshed and ready to go, but somewhat sluggish and out of the work mindset (especially if we have overindulged in eating and drinking).  For some of us this is not important as we usually get over it after a while. For others, due to the nature of the business, it may be essential to hit the ground running if we are to beat the competition and grab the opportunities while we can.  For some of us then, the first New Year’s Resolution has to be: “to be determined to do whatever it takes to get physically and mentally fit to compete… and win!”

Listening to bad advice! Many years ago, when I first acquired a horse, I found I was short of time and money, but never short of advice. Everyone I knew who had ever sat on a horse was keen to share lots of “expertise” with me.  I soon found out that most of them knew less than I did, and I suspect that some were motivated by a desire to impress, or some even less worthy motive, rather than any concern for my welfare, or the horse’s.  Well, in business it can be a bit like that. At Christmastime you can easily find yourself listening to someone with lots of advice. These tend to fall into two categories: optimists and pessimists. Both are equally dangerous.

  • The optimists encourage you to take silly risks – remember it is your money, your reputation, and your business, not theirs!
  • The pessimists discourage you with stories of how they or someone else failed some time ago doing something similar to what you are doing now.  Remember, the circumstances would not have been quite the same, and you are not them!

I am not saying you should be arrogant, but do weigh these things up and ask yourself: “how much do these people really know?”

Projecting last year’s results forwards.  It is all too easy to assume the new year will be a continuation of the old and to make plans based on that belief.  It is important to consider the effects on your business of changes which have taken place, or are likely to take place.

  • In the economy – will there be growth, stagnation or worse?
  • In Society – are there changes in public demand for your services or products?
  • In the competition – is it strengthening or weakening?
  • In yourself –  how have you changed?

Any of these mistakes can cause you to miss an opportunity, to repeat old mistakes, or commit new ones.  Now is the time to think carefully so as to get the best results in the New Year.

Happy New Year!

Do You See Risk Management in the Christmas Story?

Risk Management is probably the last thing you will have been thinking of when you were hearing the Christmas story in Church or at a nativity play recently, but think about it and see if you agree with me that Joseph was a good example of someone who managed risks well.  Here are three things he did right:

  1. When he discovered Mary was pregnant and he was not the father, he had various choices.  Even after the angel had explained it in a dream, Joseph must have known how it would look to everyone else.  Yet he chose to take a risk and do what he knew was right.
  2. When he was warned that King Herod was sending men to kill the baby, Joseph did not take any chances:  he took Mary and Jesus to Egypt, well out of harm’s way.
  3. When he heard Herod was dead, Joseph did not stay in Egypt but took his family back to his home town, Nazareth, which was relatively safe by then, even with Herod’s son in charge.

 So can we learn the right lessons from this Lesson?

  • We need to be prepared to take a risk when the good outweighs the potential harm.
  • We need to steer well clear of real danger.
  • We need to be ready to take calculated risks when the real danger is gone, or reduced.

If ever you are tempted to think that Risk Management means always reacting in the same way to every situation, think of Joseph and try to find a balanced response to the specific risk you are facing.

That could be a good way to start the New Year!


Is Networking the Answer to the Risks Facing Very Small Businesses?

Very small businesses face all the same risks as bigger businesses and a few more besides.

If you are self-employed or in a very small business, you may think you do not need to take risk management seriously as you will not have very big risks.  Or you may think there is nothing you can do about it anyway.

Do risks vary according to the size of your business?

It is easy to assume that small businesses face smaller risks than big businesses and that very small businesses must have hardly any risks.  How true is that?

  • Of course many risks can be regarded as being proportionate to the size of the business.  For instance the amount of property or the number of vehicles you own or are responsible for, and the numbers of people you employ, will determine the size of those risks
  • But the impact of any loss through fire, theft, accident or whatever, will be proportionately greater the smaller your business, as the cost will represent a greater number of days’ income.
  • In fact small businesses are more vulnerable because they do not have large financial reserves.  Think how many days’ income your business could afford to lose, and then think what would be the effect of losing one client, one employee or one supplier for any length of time.  Or the cost of having to pay out compensation for an accident injuring someone.

Surely, insurance is the answer?

  • I would certainly recommend reviewing your insurances regularly to ensure that you have adequate cover for your risks and equally that you are not spending money on premiums unnecessarily.
  • However, it is always better to prevent a claim, especially as the number and cost of your claims will affect your premiums.
  • It will be worth thinking about Business Interruption, Professional Negligence, Cyber Risk, and Key Man insurances as well as the more usual ones such as Property, Motor and Public and Employers’ Liability.
  • There are however other risks which are generally uninsurable, or for which only limited cover is likely to be available.  These include losses due to fraud, penalties imposed by regulatory bodies, damage to your reputation, and the results of bad business decisions.  For these kinds of risks prevention is definitely better than cure.

Is it true that small businesses are more likely to incur unforeseen losses than bigger businesses?

  • That may be so, since they cannot afford the luxury of employing experts within the business to deal with certain matters increasingly requiring specialist skills and knowledge.  These include Human Resources, Health & Safety, Marketing, Public Relations, Information Technology, and Finance.
  • All these things tend to be dealt with by the business owner/manager or by an all-purpose administrator.  Yet it is unlikely that any one person will possess all the skills and knowledge needed for all these responsibilities, and to keep them up to date in a fast-changing world.
  • Then if something goes wrong and a claim is brought against the business, it is often this same all-rounder who has the job of investigating, liaising with insurers, corresponding with the claimants and their solicitors, and making any decisions about denials, admissions and offers.
  • In addition to all this, if you are in a one-person business, or even a slightly bigger one, you will not have the benefit of being able to talk things over with colleagues when problems arise.  Even the most self-sufficient often find others useful in bringing different perspectives to an issue or just being sounding-boards.

How does networking help?

Being involved in a business networking group can help address some of the issues mentioned above.

  • It can certainly provide sounding-boards
  • It can enable you to outsource specialist services as and when needed, which you could not afford full-time.
  • It can also help with maintaining knowledge and skills, by providing training and development opportunities.

What else do I need?

What it cannot necessarily do is provide you with an objective professional review of your risks, nor an effective claims-handling service.  For such things it is worth consulting a suitable professional at least annually.

Are You Taking Enough Risks? Or is Undue Caution Holding Back Your Business?

An interpretation of Risk Management as an attempt at eliminating or minimising every risk, sometimes leads businesses or other organisations to miss out on opportunities to maximise profits or achieve other desirable goals.  This view fails to see the need to balance one risk with another or to fully evaluate the costs and benefits of different courses of action.

I am concerned that overzealous or one-sided Risk Management can be harmful to business and other activities.  Please do not misunderstand me.  I do not advocate a cavalier attitude that would treat lightly anything which could lead to someone’s death or serious injury, to extensive damage to property, to the loss of large sums of money, or to serious damage to the environment, nor do I underestimate the harm an ill-judged word or deed can do to a hard-won good reputation. 

However, it is easy to over-react and take excessive defensive measures.  I suspect that the man who said “I’m not afraid of flying… just of crashing” probably thought the only way to be safe was not to fly, not knowing that in fact modern airlines have such good safety arrangements that the most dangerous part of your flight is likely to be the drive to the airport!

What are the causes of this over-cautious attitude?

  1. The natural and justifiable concern to prevent undesirable consequences of our actions, sometimes taken to an extreme.
  2. Lack of communication between managers, insurers and Health & Safety, leading to knee-jerk reactions rather than properly considered solutions.
  3. The requirements of funding agencies and regulatory bodies, often lacking in detailed knowledge and understanding.
  4. The culture in some organisations, where failure is punished more than success is rewarded.
  5. Fear of being sued as a result of the Claims Culture, especially in the light of a few well-publicised high-cost cases, sometimes with unexpected outcomes.
  6. Fear of adverse publicity if the press should take a one-sided view of an incident, regardless of the real blame.

Why is a strong dislike of taking risks wrong? Does it matter?

  1. The actual risk may be very different from our impression, and so our response may be inappropriate: many New-Yorkers would rather drive in frustratingly slow traffic than take the often faster subway, out of fear of mugging, when more people are killed in road accidents than in violent robberies.
  2. Control measures may be more costly than is really justified, in terms of their effects on productivity: in fact there may be so much pressure to “do something” that controls are introduced which are totally ineffective or unnecessary, like the cowboy who wore two guns in case he missed six times and was still alive!

The Balancing Act.

Above all, this attitude of excessive caution fails to recognise that all management (not only Risk Management) involves making choices which require balancing one risk against another, such as that of making a loss by spending too much on control measures.

General McClellan commanded the main US Army in the early part of the Civil War.  He was concerned for the welfare of his men and wanted to avoid throwing lives away needlessly, so he always waited for the ideal opportunity before going on the offensive. Sadly, he lost more men to disease in his large static encampments than were killed by the enemy.  He was too focussed on one risk to the exclusion of another.

More recently there was some controversy over the failure of some schools and other organisations, to carry on during the Big Freeze of 2010/11.  There was a need to balance the risks to people in trying to work, or even get in to work, in those conditions, against the risks to the organisation, as well as to those using its services, in failing to maintain some of its activities.

What can you do about it?

  1. Fully assess each risk, looking at both the probability and the severity. 
  2. Consider all the implications of each potential control measure.
  3. Take into account financial and non-financial costs and benefits.
  4. Recognise that accidents do happen, however hard you try to prevent them, and be prepared to accept some of the consequences.
  5. Have damage-limitation measures ready.
  6. Manage the reputational aspect of your risks by being prepared to respond to the press and public in the event of (even remotely) foreseeable incidents. Try to prevent unhelpful or ill-thought-out remarks from colleagues or employees getting into the social media.
  7. Consult.  Although the manager of the activity does need to be the one who manages the associated risks, it is also important for someone not quite so involved to have a look as well, to bring some objectivity and to challenge well-established assumptions.  It could be someone within your business or an outside consultant.

So do not let undue fear of risk stop you making a success of your business or organisation.  Wherever possible, think in terms of positively managing rather than avoiding risks. The requirement to have a man carrying a red flag in front of every motor vehicle may have prevented a lot of accidents in its day, but most of us would agree that removing that restriction has benefitted society a great deal, and other measures have been brought in to improve road safety whilst allowing cars to travel faster than pedestrians.