Identifying and assessing business risk
Management of businesses in China and around the world have had to take economies to fare through the waves of augmented risk during these trying times. Some of the questions management and business owners ask to assess these risks are:
- What can happen?
- How likely is it to happen?
- What are the consequences if it does happen?
- What can be done to manage the consequences?
Risks must be identified first before they can be mitigated. This is the first step that business managers and owners must take in risk management. Once risks are identified, the probability of loss and downslope movement of revenues can be assessed. A wise manager or business owner understands that the focus of assessing risk is basically the likeliness of bad things to happen. Thus, if these unfortunate events become highly probable, it is only reasonable to assess the severity of the consequences and plan how to cushion the probable impacts.
During risk-laden times, managers and business owners need to double efforts to wade through uncertainty and loss. They must push through economic struggles and maximize returns, manage risk inherently associated with a pandemic, and ensure the continued health of their business and its workforce.
Uncertainty and loss
Some of the uncertainties that businesses’ assets are facing these days include:
- Triggers for impairment testing;
- Challenges in estimated cash flows;
- Risks in the discount rates applicable to borrowings and other financial instruments.
Significant global changes are taking place in the immediate market of all companies which means that the assessment of assets’ values may arise. By doing so, it is foreseeable that many companies face losses. It is imperative that business owners, domestic and abroad, prepare for these losses.
Although there is a pandemic, it does not necessarily mean that business will not return as usual. Nevertheless, some sectors have been significantly hit by COVID-19 more than others. These sectors may include:
- Travel and tourism;
- Makeup and self-care;
- Education; and
These industries may have yet to revive their economic presence but others have done well despite the difficulties. Some of the sectors that may be succeeding to survive include:
- Domestic and cross-border online shopping;
- Food and beverage deliveries;
- Cleaning and sanitary products; and
No matter the condition of your business, it is important to maximize whatever returns come your way. With this in mind, managers are expected to turn various aspects of business into a more beneficial situation. For instance, revenues from business operations, dividends from the investment of stocks, insurance claims, bond returns, etc. may be able to generate future economic benefits in the long run.
The continued health of the business and workforce
It is not all about the bottom-line. Profits are good but the business in its entirety and its workforce is what generates profits, so these must be cultivated properly as well. The company’s reputation, the way it handles its customers, the confidence of its staff and employees, and its standing with competitors are what make a company stay afloat. During times like these when profits are slower than usual, making sure that the company is in good standing with its immediate environment is what makes it last.