Risk management: Do what’s right and you won’t go wrong
If you had to choose one word that impacts businesses more than any other today, what would it be?
While you're thinking, I'll give you my answer. It's "risk."
Risk is everywhere these days. You can't avoid it. Will your clients pay you? Will they buy from you at all? Will you be able to pay your lenders? Will your lenders be able to lend to you? How will all this affect sales? R&D? Staffing? Training? What will your stockholders have to say?
"Wake me when it's over," you might be saying, and you wouldn't be alone. But as tempting as sleeping away your worries might be, a better option is to manage -- and, hopefully, mitigate -- that risk.
Bob Tarola has a few ideas.
Tarola is president of the private business advisory firm Right Advisory LLC and a 35-year finance and accounting veteran. In short, he knows his stuff, and he shared some of his risk-management insight during a recent virtual-CPE session on the MACPA's Second Life home of CPA Island.
"Very few organizations have robust enterprise risk management systems," said Tarola, an at-large member of the governing council of the American Institute of CPAs and a past member of the MACPA's Board of Directors. "It is a difficult area to master. The biggest problem is that we don't know what we don't know and therefore may not be focusing on the correct metrics."
When you boil it down to its most basic state, Tarola said ERM is all about managing the risk of disappointment -- disappointment that performance measures have not been achieved, that compensation and career goals have not been met, disappointment among analysts that your company did not meet expectations.
Most important, though, is the risk surrounding a company's growth prospects. That risk might include lots of other risks -- the risk of not meeting sales targets or projections, market share goals, or product development goals and objections.
Interestingly, Tarola says the answers lie as much in doing the right thing as in preventing the wrong thing.
"To manage that type of risk, one has to think about not just what might go wrong, but more important, what must go right in order for that risk to be mitigated," Tarola said. "Whether you're trying to mitigate a negative risk or achieve a positive objective, management's job is to make sure the right activities are occuring to mitigate what might go wrong."
And never underestimate the importance of training, especially in risk-heavy environments like the one we're in right now.
"There's no question that capable, well-trained people help mitigate risk," Tarola said. "As I said earlier, we don't know what we don't know, and the more training we have, the less likely that it will be a problem."
Looking for more details about risk management? Tarola expands on his thoughts in a four-hour Business Learning Institute program titled "Audit Risk: Beyond the Balance Sheet."
We'll also examine the risks inherent in this economic crisis during our second Maryland Business and Accounting Expo, slated for June 16-17 at the Baltimore Convention Center. Get complete details here.
How are you mitigating risk these days?