Risk management is a competitive advantage for private companies

Effective risk management can help private companies grow on solid footing

In the current economic environment, sound risk management has become a key focus and necessity for private companies. Indeed, according to a new article from PricewaterhouseCoopers (PwC), having a risk management system is vital to ensuring that all stakeholders in the organization are on the same page and in helping to take advantage of new opportunities, such as expanding the business overseas to addressing climate change.

* Risk management provides in-depth awareness and analysis to help private companies achieve their business goals
* In the post-recession landscape, risk management will likely play a much bigger role in business success
* Without a sound risk management process in place private companies could be at a competitive disadvantage

“A risk management system gives companies contingency plans to deal with sudden risks such as a market downturn or the loss of a major client,” says Mike Harris, leader of PwC’s Canadian Corporate Governance practice. “But it also provides them with the strategy and methods to carefully assess the risks involved in taking new opportunities and plotting their course with the confidence of knowing they are prepared to deal with these risks.”

According to Harris, risk management is not just about avoiding or mitigating risk, but also managing it. To help private companies implement an effective risk management system, Harris offers the following tips:

* Take a very honest and thorough look at your company. Decide on your risk appetite and know the key risks you should be looking at. Ensure that your plans for dealing with risks – from major issues to new sales or growth opportunities – are aligned with your strategic plan or objectives as a company.

* Identify your true unique risks – don’t rely on standard formulas. Every industry has its specific top risks, and every company within those industries also has its own unique risks based on its culture, maturity, place in the market, etc. Find your concealed risks, such as compensation based strictly on gain without factoring in loss. Expand your outlook and data to be more forward-looking.

* Weave your risk management process throughout your company. Risk management starts at the top of the company, but, overall, it is a team effort. Your risk management strategy should be integrated throughout the company with clear communication. Make sure you have the right people, mechanisms, culture and technology in place.

* Don’t leave for tomorrow what can save you today. Many companies are in survival mode to manage through the current environment and are not thinking ahead. Harris suggests, “If cash flow is paramount right now, that is probably your greatest risk and you should be focused on it. However, develop a plan for when you get through the credit crunch – don’t be caught one step behind your competitors.”

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