In 2001 I was head of Business Risk Management at Lloyds TSB Insurance. I led a team of risk-aware individuals who planned for a strategically focussed, resilient future. We watched trends. There were quiet, benign times when not much appeared on the horizon that could throw us off course. There were also dynamic times when it seemed every day brought visible change that affected the business. Proper risk management came from never being surprised by events however unusual and rare. It came from having planned a response before the crisis appears.
Business Risk was something that I define as “events that might happen, however unlikely, that impacts your ability to do business well.” As humans, we are not designed to evaluate uncertainty. We tend to get both probabilities and impacts wildly wrong. Risk management needs a structured approach.
One way to address the human shortcomings around risk is to consider trends. Trends are often apparent long before their impact strikes. Before the 2008 banking crisis, had anyone been looking, the trends in the growth of derivatives in the subprime mortgage market should have highlighted the impending risks. They were spotted too late. Not because they were hard to spot, but because no-one was looking.
In small businesses resources are limited. It is essential to identify where to look for trends, to understand which ones matter and to think about what will affect your business. As a strategist, I am working on plans that will change my clients for years. Consequently, I am looking at risks over similar timescales.
An example – GDPR
GDPR – The General Data Protection regulations – create risks for businesses around their handling of, and use of data. It is part of a broader trend, towards more control of personal data by individuals and companies, and a more general direction in the consequences for businesses that ignore regulations. Strategically focused firms are going further than GDPR requires, playing to where the trends are pointing, beyond the waypoint of one specific rule. By doing so well, managing the risks creates opportunity.
Which trends matter in your business?
That depends on context; I ask businesses to consider why their clients hire them. Fully understanding, in depth, the things that would stop the company being the right choice for its clients is always a smart place to start.