CHAPTER 4

Let Us Be Specific!

The next section looks at a number of specific types of risk and specific issues. I hope you will gain something from all of them, even those that are least similar to your situation.

How to Avoid the Seven Landmines of Growth

Although I want to warn you of the seven landmines you could step on when your business starts to grow, I do not intend to discourage anyone from taking advantage of any opportunity to grow their business, but I want to see you on a journey to continuous success, not just a temporary lurch forward followed by a crash as you drive into a wall. (Yes, I have changed the metaphor, just to make the point.) Let us look at each of the landmines and see how it can be avoided.

1. Money. The more money there is in your business, the more interesting it becomes to thieves and fraudsters, even within the business sometimes. Have a good look at your physical security arrangements and at your procedures for receiving, managing, and paying money. You might have been lucky so far, but now you need more than luck. There is also the problem of cash flow. Money usually goes out before it comes in. If you expand too fast, you might run out of money even if you are making good profits on paper. Have your accountant or financial advisor look at your cash flow and avoid early bankruptcy. And, do not forget our favorite creditor, the taxman. He often turns up late but is relentless in his demands. Be ready. Excuses do not wash. Trust me.
2. Property. Is your property still fit for purpose? Think about overcrowding, access, car parking, security, and health and safety. If more people are coming and going, the risk of an accident, or just ­inefficient working, is increasing. You may find you need to move, or you may find a new layout, traffic flow, and signage will be enough.
3. People. If you take on new people, do not forget to train them and include basic induction. (Who is going to do it?) Many employers take too much for granted. Another reason to review health and safety: new employees will not necessarily have the same common sense as existing ones. Then, think about your contracts of employment, procedures, and instructions, or you may find you cannot get rid of people who turn out to be unsuitable, however good your recruitment process is. (Is it?)
4. Systems. Most business owners review their IT systems when the business grows, but often forget to review the manual systems that even nowadays are an important element in the mix. I can rely on my memory for appointments and for finding documents, up to a point, but the more of everything there is, the less confident I am in this, and the more systematic I need to become. I know other people who are so reliant on their mobile phones that I do not know how they would survive if one was lost or damaged.
5. Outsourcing. You may already be outsourcing certain functions, but as the business grows, you need to review this. It may be that you and your staff are trying to do too much, and especially too much of what you are not good at! Outsourcing could be the answer. However, remember that failings by your supply chain can affect your productivity and your reputation. Pick the right suppliers and look at their risk management. Set up a system of performance monitoring.
6. Clients. Growth usually means more clients. The new ones are likely to be different from the existing ones, with different expectations, and possibly less tolerant of your shortcomings. (We all have them you know!) So, upgrade your customer care arrangements, possibly getting some training for your staff and even yourself.
7. Yourself! A friend of mine was lucky enough to see his small business expand rapidly and then realized that his biggest obstacle was himself. He has started taking advice on time management, cash flow, customer care, and other aspects of managing a business, rather than just doing a job. I hope it was not too late for him. What about you?

I hope your business is going to grow and that nothing I have written will put you off. Just watch out for the landmines and ensure your growth is going to continue. Profitably.

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

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.

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 the related risks. However, 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 some ways, 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.

Is it true that small businesses are more likely to incur unforeseen losses than bigger businesses? That may be so, as 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 and safety, marketing, public relations, information technology, and finance. All these things tend to be dealt with by the business owner or 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.

How does networking help? Being involved in a business networking group can help address some of the issues aforementioned.

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

You need to find a group that meets your particular needs. Be prepared to move on if it does not.

Do You Want to Live Dangerously? Then Try Partnering

Partnering is a word that has many meanings. Here, I am using it to refer to an arrangement where two or more businesses or other organizations work together on a project but remain separate entities. It seems to be growing in popularity and is encouraged by many government agencies and other influential bodies, as it can be a means of making use of the expertise and resources of more than one body to achieve some desired objective. There are many success stories, but the failings and pitfalls are not always so well publicized. You know you can make plenty of mistakes all by yourself, but to get into a real mess, you need help. Partnering allows your business to suffer from mistakes over which you have no control and may even know nothing about. If you are in, or are about to go into, a partnering arrangement and think this statement is an exaggeration, try answering the 12 questions in this section and think again. Then, think how you are going to control the risks, unless you really want to live dangerously. Is your business at risk? Here are 12 questions to ask yourself about your partnering arrangements to see how well the risks are being managed. Or, leave it until something goes wrong before asking them, if you really like living dangerously.

1. Do you know what are your responsibilities and what are those of your partner organization?
2. How are risks managed in both or all bodies concerned? Does it matter if there are different approaches?
3. Does the partnership or joint body exist in itself?
4. Should it?
5. Is there separate insurance for the risks of the partnership? If not, will your insurers cover the joint risks?
6. Who manages the joint risks?
7. If a claim arises from a third party, who decides which party is responsible for dealing with it and for paying any costs?
8. How satisfied are you that all parties concerned are capable of managing the additional joint risks as well as their existing ones?
9. How will any failings by the other party affect your business? Legally? Financially? In terms of your reputation?
10. What are the arrangements for termination? Could a divorce be messy and expensive?
    Now let us say you have answered all the questions and are satisfied. (Go on, let us just say it!) Now ask two more questions:
11. Have the other partners considered these questions and are their answers are the same as yours?
12. Are you sure you all have the same understanding of the risks and the controls?

You may think the last two sections contradict each other. Properly understood, they do not. The point is that you need to decide where your risks and opportunities lie and what steps you need to take to gain the most from the opportunities while controlling the risks.

Is Working From Home Likely to Increase or Reduce Your Risks?

Many people claim that working from home creates benefits for both the employer and the employee as well as many self-employed people, but it is important to look at the downside as well, including the risks it can cause, or at least increase. Can these be offset by reductions in other risks? Can we find reasonable control measures to enable us to maximize the benefits while minimizing the risks?

Who benefits? From the employer’s point of view, the chief benefit is probably that of saving on the amount of office accommodation required. This is also a benefit for the self-employed. From the employee’s point of view, the elimination of the daily commute is probably a major attraction, but for some, the ability to work in an environment of their own choosing and the absence of distractions such as unnecessary supervision and office politics are the main benefits, enabling them to actually concentrate on the work and to work to the timescales and rhythms that suit them and enable them to work at their optimum pace. Some would counter this by saying that there can be as many distractions in the home as in the office, especially during the school holidays. This is obviously going to be more significant for some than for others, and it is necessary to find what is best in your situation.

Some employers are cautious about allowing working from home because of the risk that employees would take advantage and do very little work. Some companies try to mitigate this by requiring staff to complete worksheets to account for their time. Some even require a certain number of keystrokes on the computer. Unfortunately, such control measures are often inefficient, ineffective, and counterproductive. I would advise measuring outputs, rather than inputs. If a person can get the job done to a satisfactory standard, then it should not matter whether the time taken was more or less than the norm. And obviously, the opposite is equally true. It has to be acknowledged, however, that some jobs lend themselves to output measurement more than others.

Some people are concerned that those working from home could be at risk of damaging their health by using ill-designed workstations and by failing to take adequate breaks from repetitive tasks. A few even suggest that employers should carry out health and safety checks at employees’ premises. That might be justified if there was a lot of physical work involved and the premises in question amounted to a workshop, but it is probably too intrusive if someone is merely using his home as an office. A sensible compromise might be for the employer to insist on all employees receiving adequate training in safe and healthy ways of working.

The cyber risk is one of the most serious and one that is often overlooked. If an employee is using his or her own computer or even a device linked to a computer, it is essential that he or she maintains all the cybersecurity standards that would apply if he or she was working in the office on the company’s computer. This means establishing a company-wide policy for such things as passwords, backups, encryption, malware protection, and firewalls, as well as rules for use of the Internet and social media. There also needs to be a similar approach to the data protection and commercial confidentiality risks offline, to ensure other people living in the house, or even visitors, do not get access to company documents.

It would be wrong to overstress the risks, however. In some ways, home working can reduce the risks. My house is less likely to be targeted than most offices by people looking for valuable information. There is also a reduction in certain risks if people are not concentrated in one place. In the event of a physical accident in an office, there could be several victims, whereas this is far less likely with people working from home. Similarly, fire, flood, or storm damage to an office could lead to the closure of the business, at least temporarily, while such a total shutdown would be very unlikely if workers were based in their various homes.

Finally, remember that, from the point of view of society, the reduction in commuter traffic is to be welcomed.

As I have often said, risk management is a balancing act. Weigh up the risks in your particular situation, along with other costs and benefits, and see what measures you need to take to control them, rather than making any broad assumptions about home working being good or bad.

Might Your Salesforce Be Putting Your Business at Risk?

When you think about the risks your sales force may be creating, the main thing to bear in mind is that salespeople are often working alone and away from the supervision, support, and the sort of controls that reduce risks in other parts of the business. Let us consider what these risks are.

• Damage to your reputation. This could be caused by overenthusiasm or by a lack of respect for the potential customer.
• Compliance issues. Mis-selling is the obvious one, but data protection is another. In some industries, there are still more.
• Overpromising. Usually about availability or delivery. Possibly about quality or performance.
• Giving away money! Allowing too many discounts or making special offers without proper approval.
• Lone working. Salespeople often work from home or are out on the road a lot. This makes supervision difficult and may leave them vulnerable to all kinds of risks, which would not apply to workers in an office or a factory.
• Stress. Pressure to achieve targets, especially when coupled with working alone, can lead to stress-related health problems.
• The “gray” fleet risk. If salespeople are on the road a lot, even using their own vehicles, there are elements of the motor risk that can fall on the employer. These include vicarious liability for third-party accidents and the risk of their having inadequate or inappropriate motor insurance themselves.

Nine Tips on Minimizing the Risks Without Reducing Your Sales

1. Have clear policies and procedures against mis-selling and make sure you provide training, so your salespeople know them. Frequent updates and refreshers will be worthwhile.
2. Have clear rules about the levels of authority for negotiating discounts or other benefits; otherwise, your sales people could be selling your products at a loss out of the desire to get a sale at all costs: to you!
3. Check driving licenses and insurance certificates of all people who use their own vehicles on your business or you could find yourself liable for accidents they may cause.
4. Set realistic targets and programs, so you will not be held to be the cause of any accidents due to drivers being too tired or driving for over-long times.
5. Issue appropriate health and safety advice to people working alone.
6. Issue rules and guidelines for the use of IT and social media, whether the kit is provided by the business or not.
7. Have procedures for handling complaints, which involve independent review to ensure fairness to both customers and employees.
8. Make sure members of the sales force do not handle money or invoices, to guard against fraud and to protect the innocent from false accusations.
9. Try to get out there and see what is happening in reality; do not just rely on reports on paper or online. Meet customers and salespeople occasionally at the front line.

Remember that, in all these things, rules are no use unless taught and enforced.

What Is the Answer to the Threats That Could Put You Out of Business?

What risks could be potentially serious enough to put you out of business, at least temporarily? How long would it take to recover? How much money would you lose during that time?

Here are some examples of risks that have done serious, even in some cases permanent, damage to some businesses.

• Property damage, caused by anything from fire to severe weather or deliberate malicious acts.
• Reduced access to your property, caused by any of the aforementioned, or by disruption to transport.
• Machinery breakdown, and difficulty in obtaining replacements or repairs.
• Cyber-risks, including loss of computing facilities, loss of data, or misuse of computers, data, the Internet, or social media.
• Power cuts.
• Employee absence, caused by sickness, strikes, or difficulty recruiting following departures.
• Damage to reputation caused by a public relations ­catastrophe.
• Intervention by a regulatory body due to noncompliance.

When did you last spend any time thinking about how to prevent or limit the effects of each of the aforementioned? In addition to these, there is the question of the supply chain. Many businessmen look carefully at the risks threatening their own businesses but have no idea how well other organizations are managed, while in the present global economy, we are all increasingly interdependent. Floods in the Indian subcontinent a few years ago seriously disrupted the provision of certain minerals used in manufacturing computer parts. Some British business owners thought they would be able to switch suppliers fairly easily but found that all supply routes led back to a few mines in one small area.

Some people think the answer lies in business interruption insurance, and I certainly recommend looking into the cost and the extent of cover available to your business.

However, this type of insurance covers only the interruption of your business resulting from damage to property or machinery, and also the loss of computer services, and even there, the cover is usually quite limited in scope. It follows that losses arising from the other risks listed cannot usually be insured. Therefore, the only way to protect your business is to have procedures in place to reduce the chances of such events occurring and to have plans for recovering quickly from whatever does occur. You may also find that the cost and availability of business interruption insurance are influenced by your ability to provide evidence of your risk management and disaster recovery policies, so even those risks you can insure against need to be managed as positively and effectively as possible.

If you are in a rented property, you need to look into the arrangements your landlord has for insuring it and for rebuilding in the event of a major loss. His loss of rent may be much less than your loss of turnover. Similarly, you need to look at the insurance and disaster recovery arrangements of anyone providing machinery or computers on which you depend.

Given the effects of stress on people’s decision-making abilities, the best time to make your contingency plans is before the contingency happens.

In summary, do not let all your hard work in building up your business be wiped out by events that you may wrongly think are beyond your control or influence. Look into the practical measures you can take to reduce the risks or at least to reduce their potential severity and look into the different insurances there may be available to help you contain the costs if the worst does happen.

Here is an example of the approach that I am advocating. I once went to a half-day conference on responding to climate change. The UK ­Environment Agency and Warrington Council were running it. The main focus was not on

• whether or not climate change is happening,
• whether or not it is the result of human activity.
• how we might prevent it.

For once, the emphasis was on what to do to mitigate its effects. Not primarily what the government or some others in authority might do, but on what you and I can do. We talked about flooding, storms, snow, and ice.

We looked at issues like power cuts, transport, access to property.

• How to be prepared.
• How to make realistic plans.
• How to communicate them within your business.
• Where to get help.

We noticed that a lot of plans will do just as well to deal with several different types of emergency, even a bad flu epidemic, and we considered the opportunities and the risks of working from home.

This is applying risk management to risks you thought you could not control.

How Well Prepared Are You for the Risks that Winter May Bring?

Regardless of climate change, most businessmen and managers are aware of the damage that severe weather can do to buildings, vehicles, and machinery, and they take sensible precautions, which we need not go into here, but a few other risks that may be less obvious can make a big impact on your profits, or at worst, can threaten the survival of your business. Two things are likely to occur in winter, which can affect most businesses:

• Staff absences, due to flu or other illnesses, or just from the effects of bad weather on road, rail, and air transport.
• Supply chain problems, from similar causes.

These can reduce your output and can lead to a failure to deliver goods or services to your clients. The long-term results will depend on the nature of your business and on your relationship, contractual or other, with your clients, and possibly on how quick your rivals are to step in.

Losses can also arise from claims brought by members of the public, or by your employees, blaming you for injuries they have received as a result of the following seasonal factors:

• Ice, especially in car parks, access roads, footpaths, forecourts, or other areas you are responsible for.
• Reductions in inspection and maintenance of buildings, land, and machinery due to staff absences.
• Lack of supervision over key tasks also due to staff absences or to additional calls on the time of senior staff.

Such claims may be costly and time-consuming regardless of whether you were really at fault or not. You cannot control the weather, or the authorities’ response to it [unless you are someone who does control an airline, a railway company, or a public authority: if so, please think about the effects on businesses of your decisions!], but you can take steps to improve your chances of surviving.

1. Identify key issues for your business: people, property, processes, and projects.
2. Make contingency plans for whatever you consider your most ­serious risks.
3. If possible, ask your suppliers about their readiness for winter.
4. Train staff to deputize for one another in key areas.
5. Draw up some backup plans: to take on extra staff, to outsource work, or to use alternative suppliers, in the event of the usual arrangements failing.
6. Check your legal responsibilities regarding any land where people may fall on ice, including duties in any leases with your landlord, and draw up procedures where necessary for inspecting, clearing, or otherwise making safe the key areas.
7. Above all: carry out risk assessments and document them.
8. Do not be afraid to decide to do nothing, if you consider the danger is so unlikely or not so serious as to justify the cost of any measures you might take.

In the event of a claim, you will be much better off if you can show you have considered the risks and made a reasonable effort to deal with them, than if you seem to have done nothing about foreseeable issues. Even if you decide to do nothing, a record of that decision and of your reasons for it will be a help in defending a claim.

Finally, review your insurances to see whether they give sufficient cover for the risks facing your business. You will be able to make better decisions about insurance after you have gone through all the other steps, and you will probably get a better response from your insurer too.

How Voluntary Sector Managers Can Prevent
Not-For-Profit Becoming a Big Loss

Whether you call your organization a charity, a not-for-profit body, or a nongovernment organization, from the point of view of risk management, it can be considered part of the voluntary sector. Unfortunately, although this sector contributes so much to our society, it is probably more vulnerable to many risks than much of the public and private sectors, partly because, many such bodies still operate in a culture which does not always lend itself to the management practices of either the public or private sector, often for good reasons. There are several factors increasing the risks affecting the voluntary sector:

• The sector’s clients are often vulnerable, and at the same time, difficult to manage.
• Volunteers cannot always be managed as easily as employees and may have an amateurish approach to administration.
• Volunteers and people working in this sector may be more trusting than others.
• Volunteers and people working in this sector may believe, rightly, that money is not everything, without appreciating the need for sound financial management.
• People may regard a voluntary body an easier target for fraud, including fraudulent public liability claims, than businesses or other bodies.
• People may regard this sector as easy to infiltrate for various undesirable purposes, whether political, criminal, or personal.
• In this sector, reputation is of the utmost importance but can be very fragile.

The key elements of managing risks in this sector can be summed up as follows:

• It is essential to have effective financial, and other, controls and procedures, but these do not need to be unduly bureaucratic. They should be efficient, effective, and proportionate.
• Make use of training for staff and volunteers in developing various skills needed in their roles.
• Be constantly vigilant for fraud, error, and wrong practices, on all sides.
• Be sure that you, and other relevant people, are clear about the insurance and risk management arrangements of any national body you are connected with, and where these need supplementing locally. Do not leave gaps unfilled unless that is a conscious decision based on an understanding of the risks.
• Accept that, in any organization, things do go wrong ­sometimes. Have a Plan B for most eventualities and ­communicate it.

I hope that, if you apply these ideas as appropriate in your situation, you will be able to defend it from the risks it faces, without losing too much of its essential voluntary character.