“What’s the one thing that small businesses hate the most?” asks Ashe. “Surprises. We hate surprises. We like to have some certainty about what’s going on, because we’re spending a lot of time doing what we do, trying to eke out a living for ourselves. Risk management is a way of trying to take those surprises away.”
Seven steps towards developing a successful risk management strategy
Create a dialogue
Either talk to your team or talk to your colleagues. Ask, ‘what are the things that we’re concerned about in how our business operates?’
Define your ‘risk appetite’
Remember that if you never take on any risk, you will never make any return
Outline the key risks you currently face
A ‘risk’ is just an event that, if it eventuated, would have an impact on your business objectives. Again, what does your team think are the risks?
Ask, how ‘risky’ are all those risks when I compare them to the backdrop of my risk appetite? Are they within acceptable boundaries?
Identify any gaps in current risk management strategy
What controls do you already have in place around those identified risks in your business? Are you comfortable with the level of control you have? When you look at those risks in terms of how risky they are – and controls that you have in place – are you now satisfied that the risks are well managed?
Decide if you need to adjust the level of control you have. Do some risks need more control? Do some risks have too much control and you’re actually wasting money?
Once the risk set is understood and controlled, you need to test the controls on a regular basis and ensure they’re working. Ashe says brokers should check their entire risk management process once a year and ensure that all risks are still understood and prepared for.
If you are a credit licensee, you’re obliged to have a system like this already in place, notes Ashe. “But, putting the legislative and compliance requirements aside, it just makes good business sense.”
QED Risk Services director, Greg Ashe, has spent more than 15 years applying the science of risk management to finance businesses. In 2009, Ashe set out to educate mortgage brokers about how their obligations as credit licensees can be turned around into best practice for their businesses.