Mitigating Risk To Your Business

06 Jun Mitigating Risk To Your Business

The recent rupture to the 168km pipeline from Whangarei to Auckland has certainly put the “fox in the chook house” when it comes to culpability, blame and the cost to the New Zealand economy. It has been estimated that the cost could be up to $15 million dollars, but I dare say it will be more than that if all the other indirect cost factors are considered.

Several reasons for the failure had been stated but an interesting claim has been the lack of commercial risk management. I would like to think that this has been considered but if one considers when the pipeline was first installed to the present-day, New Zealand has changed dramatically in population and commercial growth, then this breakdown scenario surely must have been planned for.

This event is not the first to occur, whereby many businesses have been impacted by a single supply link and I am sure it will not be the last.

In February 25, 2002, a bulldozer ruptured the main gas pipeline near Himatangi, west of Palmerston North, cutting gas supply to 50,000 users in Hawke’s Bay, Manawatu and greater Wellington and temporarily closing State Highway One.

In both cases, the events were caused by machinery being operated within the confines of the safety easement either side of the pipelines. As both pipelines carry highly volatile substances, any excavation work on a pipeline easement is required to be notified.

What these two cases highlight is:

1. To plan and to carry out a risk assessment prior to digging;
2. To check before you dig;
3. If its notifiable, notify the authorities concerned;
4. The importance of considering the risk management factors and likely consequences; and
5. The cost (if you get it wrong) to your business and in both these cases, the cost to the New Zealand economy.

Business risk management – has your business considered this?

Most businesses have, and it’s called insurance cover.  This comes at a cost and in some cases, with a few fish hooks to catch the unwary.

But if you own or manage a business, have you taken time to evaluate all those other business factors that can’t be covered by insurance cover like:

• Business continuity;
• The environment;
• Your customer loyalty;
• Health and safety;
• The quality of your products and services;
• Your business assets;
• Your legal and director responsibilities;
• Your company’s systems and processes; and
• Your employees and their skills and capabilities.

All these factors and others should be considered when you undertake a risk assessment. This exercise should not be a one-off but undertaken as an annual event and/or when the business suffers an event that impacts on its commercial viability.

In effect, this is an annual business health check and I don’t just mean when you get your books back from the accountant. It is a dedicated assessment of the state of the nation of your business for its future, so if you get the unexpected, you have a plan B or the contingencies in place to deal with it.

People are my greatest asset

I have lost count of the times I have heard or seen this stated on the business’ Mission and other wall covering policy statements. In reality, this is a topic that is too often paid lip service. The positive thing is that this is one of the key success factors of any business.

Skills and capabilities

Questions to consider:

Have you ever had a situation in your business where a key employee has been away from work and you did not have any other employee who had the skills, qualifications or experience to do their work?
If yes, what was the cost to your business?

Have you ever carried out a risk assessment, or otherwise known as a skills and competency assessment, to identify if you have adequate coverage and reserves for all positions and functions in your business?
If you have not, then this is a risk assessment that can be completed in a short time and will pay dividends, but only if you act on the deficiencies and close the gaps.

The human resource gap analysis and capability matrix

This is not new and has been around for 50-60+ years and can be completed by the following steps:

1. Set up a spreadsheet or a simple hard copy matrix;
2. Across the 1st line, enter 10 of the key functions or processes of your business that if not carried out correctly, would impact on the financial viability of the business;
3. On the 2nd line, enter the ideal number of staff you would need at any one time to undertake this process effectively;
4. On the left-hand column list 8-10 employee’s names who are key to the business operations;
5. Then consider the first function and each employee in turn and ask these question:
   • Can this employee do this job? if yes, tick the corresponding box.
   • How effective is this employee in this function? Are they 25% / 50% / 75% 100% effective?
6. Continue to assess each employee for their capability;
7. When completed, take a step back and ask yourself these questions:
   • All these employees are entitled to 4 weeks annual leave.  Who covers their role in their absence?
   • Are there any expected or planned absenteeism in the future?
   • Who will be away training, or is there a possibility of sick leave or an accident?
   • Do I have any shutdowns or new production targets to meet in the near future?

Now the million-dollar questions:

• Do I have adequate coverage of skilled, trained and competent employees to undertake all the key tasks as described?
• What gaps are there in the business skill levels?
• What is the potential commercial risks, or loss of profit, and/or the consequences to my business through lack of adequate coverage of trained, skilled and competent employees in the next twelve months?

Although this is a very simple process, in the past 25 years I have not seen too many businesses carrying out this simple, yet effective risk assessment on their business. Now you have completed this, what are you going to do about it?  It’s up to you!

For a complementary copy of a business risk assessment matrix, please contact us today.