Steven Mugglestone

The more I learn, the less I know

Another Finance Director Area ……. Controlling Risk and How We Can Help:

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Another Finance Director Area ……. Controlling Risk and How We Can Help

For the full time or part time professional finance director, risk is an area that sits firmly under their jurisdiction, mainly as an FD possesses the analytical skills and wherewithal to be able to identify, evaluate and manage this area, but also sometimes because the business owner or other directors cannot face dealing with such an area.  For FDs and special project managers, the risk register and risk management is part of the skills tool kit.

See “How an FD drives a business when sometimes Accountants are just catching up”:

What is Risk

Risk, according to Wikipedia, is the potential that a chosen action or activity (including the choice of inaction) will lead to a loss.  Risk management is therefore a matter for every organisation. For those who have been involved in any substantial grant application, or collaboration agreement or even a new business tender, a risk register identifying the risks that the project will go off course and what steps are in place to bring it back in line is common.

Risk management, therefore, is seen as the process of identifying, assessing and taking appropriate positive steps to either eliminate or reduce the key risks faced by an organisation where it is practical and cost effective to do so. This is important as we are considering real potential events and real potential losses.  Thus, proportionate arrangements can (and really should) be put in place by all organisations to minimise the probability and impact of the risks they face – or to deal with the consequences if an external risk cannot be fully controlled or eliminated.

Risk management therefore presents numerous challenges as it reflects the inevitable fact that assets, processes and people can and probably will fail or can be damaged by external events. This in turn can lead to consequences that are unplanned, unwanted and costly to rectify. At the extreme, disasters can happen and business will be tested with their disaster recovery procedures, which are the extreme areas of risk management, but most can recognise the positive outcomes from those businesses who have put in place a robust disaster recovery plan and those that went from bad to worse and even closure as their recovery plan proved not so robust.

A key component of risk is what can be termed Operational risk. Clearly this affects all businesses and relates to those elements that fall within an organisation’s commercial operations. These can often include:

  • Process and procedural robustness and integrity including legality and compliance with legislation, both general and industry specific
  • Staff, skills, training and documentation
  • Specific insurance and self-insurance
  • Supply chain, outsourcing and inherited risk
  • Infrastructure, systems and telecommunications
  • Physical and information security

Risk has two main components; impact and probability. Impact is a reflection of the loss or discomfort that may be caused by an event. Probability (or likelihood) is an indication of how often we can expect a particular event to occur. Taken together, they give an indication of our exposure to risk or how much we can expect to suffer as a result of unwanted or unplanned events. If we picture this on a graph of cost and likelihood, actions that sit in the high cost and relatively high likelihood area are ones that need to be seriously addressed and controlled.

As our understanding of risk management increases, so does the expectation and requirement for organisations to adopt appropriate policies, strategies, training and documentation. A well thought-out risk management plan is critical to the well-being and continuity of an organisation.   Any board of directors for a larger business will ensure that this plan is high priority for delivery and maintenance.

Help with a risk management strategy

A full-time finance director can help manage this area, but those organisations without a full-time finance director, we can help provide this support as part of our Finance Director Services. We can help you prepare a risk management strategy, with relevant supporting policies to cover:

  • Your staff and training
  • Your data, computers and information systems
  • Your internal control processes and procedures
  • Your corporate integrity and security
  • Your risk appreciation
  • A risk register and control documentation

Why do you need help with a risk management strategy

  • You know that you need advice generally on all areas of risk, and its management, that could affect your organisation
  • You want to help embrace and include risk management within the organisation
  • You know that you need help to develop key strategies and processes to manage risk
  • You want to review and refresh your existing approach to risk management
  • You want to improve the knowledge of risk management amongst your staff
  • You need to comply with statutory and/or best practice requirements in your industry

Bespoke Training

If a risk management strategy is to be truly successful, organisations must embrace a risk management philosophy at every level. As organisations grow and risks start to be managed at departmental and divisional levels, it is critical that all those involved in the process are fully trained and aware of what is expected of them.

As full time Finance Directors, those in our firm that have developed our risk management service and help our clients with risk policies, have managed this area within an organisation and we have developed this crucial service for our clients. This can vary from small practical workshops and seminars to larger scale training events. It is generally aimed at senior management, non-executives and middle managers to help them understand the process and embed effective risk management philosophies throughout their operations. However, we will tailor our training to meet the specific bespoke needs of your organisation and this can be targeted at any level of staff you feel is appropriate.

Why would you need training support

  • You want help in embedding a risk management culture within the organisation
  • You want your managers and staff to have a better general understanding of risk management
  • You want your staff to understand the organisations’ processes to manage risk
  • You want to start devolving risks and managing them at departmental level and need some help to implement this

Risk management is critical to the success and continuity of a business and all business, whether small or large must consider and manage risk that is relevant to them and in a way that is both practical and cost effective to them.  Whether you are submitting a new work tender or a grant application, businesses are expected to be able to identify, articulate and demonstrate that they understand and control the risks that they face within their trading environment.  We utilise and combine our skills as former finance directors, managing risk in those business in which we worked within together with our knowledge and wide ranging experience of dealing with a large variety of businesses over our careers, to be able to really help you, our clients and potential clients.

Steven Mugglestone BA FCA
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

T: 0845 519 5659                T: 0121 236 3317

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Written by Steven Mugglestone

February 2, 2012 at 10:07 am

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