Know the pitfalls of running an SME before you encounter them first-hand.

Cocid-19 threatens a variety of businesses (and SMEs in particular). Among many other issues, the government’s moves to contain the public health risk may well have caused a sudden drop in demand for your products or services, as well as a shortage of staff and disruption to the supply chain.

Because of less demand, a business can be strapped for cash. Who knows how long the Covid-19 crisis will last? If the crisis is prolonged, consumers will probably either consume less or change how they buy. Now is the time to activate a robust strategic plan to try and properly position your business to navigate the Covid–19 crisis and be prepared for rapid recovery when things turn around.

Risk management strategies can help you navigate through all the disruption and help pull you through the hard times. Having such strategies in place could also help with implementing risk management solutions. However, consider looking out for common pitfalls SMEs often encounter when managing risk.

Not identifying risks and their impact

If business leaders have learned anything in recent months, it should be that surviving (let alone thriving) in difficult times requires being prepared for the unexpected. It’s unlikely that many will have anticipated a global pandemic, but, with regard to managing risks, some companies might have been better equipped than others.

However, not all risks are created equal. Don’t expect that everything will end up having the exact same effect on your business. Not all problems will present themselves in the same way either.

This taxonomy – large or small impact, high and low probability – is the most prevalent form of risk assessment by businesses. However, even seemingly low-impact risks need to be closely monitored as major incidents for a company can occur from a series of small issues, mistakes and missed chances of containing things. One scenario we often see is where a business lacks strong financial processes and controls, and the loss of a key member who has informal wisdom about how things are done can have a huge impact.

Failing to develop mitigation strategies

You can take steps to prepare based on your industry, company size, area, and other factors. Deciding on risk acceptance, reduction, sharing, avoidance or total elimination of each risk should drive your risk response. You can consider shifting your budget from fixed expenses to variable expenses. Reevaluate the rent of your office space as there will be more employees transitioning to remote working options.

Cash is king for businesses – cutting needless expenditure or expansion plans to preserve extra money is wise. By publishing clear HR policies, data security policies, confidentiality-related policies, and other policies, while concentrating on the operational stages of strategic management like taking care of people or having them work from home, you can think from the point of view of compliance, which is a vital step towards better risk management.

Failing to make better decisions

It seems there is a misconception that risk management is about managing risks. Funnily enough, that’s not the key point. Risk management isn’t an end in itself. It is just another management tool for helping you make more informed decisions and thus achieve your goals. That is a significant difference between small and medium-sized enterprises when it comes to this.

SMEs conduct risk analysis when a decision is needed, using whatever methodology for risk analysis relevant for that particular type of decision. Large companies conduct risk management when it’s time for annual, quarterly or any other regular internal risk management. However, this notion is far from the reality of effective risk management.

Unless your methodologies, approaches, and tools enable risks to be analyzed at any time during the day when a major decision is made or during key business processes, you are likely doing something wrong.

Not analyzing your cost structure

Consider devoting extra time to identifying costs to be removed by going through each and every line item in your financial reports. As a rule of thumb, consider removing it when an expense does not contribute directly to revenue generation. Find ways to reduce your costs too. For example, if you haven’t recently switched insurance providers, now may be the time to look for an alternative, cheaper provider.

Overlooking minor discrepancies

It is worth noting that catastrophic events and emergencies rarely occur in SMEs although small losses, close calls, unsafe acts and unsafe conditions might take place. In the daily running of a small and medium-sized enterprise, incorrect or ineffective action, as well as errors can happen. By monitoring problems (no matter how small they seem) and analyzing their underlying causes, you could find the cause of a more serious problem, and hazards that exist in your organization. When it comes to your SME, try not to overlook any disturbance, or allow it to occur again.

 

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What other SME risk management mistakes do you know of?