MINIMIZING RISK
The main ways to minimize risk are:
- Institute financial controlsto prevent fraud.
- Set up compliance arrangementsto ensure that regulations are
adhered to. - Monitor key transactionsor those above a certain value and the
people that make them to ensure that they are carried out in
accordance with policies and procedures and do not entail
undue risk. - Insure againstsuch risks as a major customer becoming insol-
vent, natural disasters, a country to which the company is
exporting imposing currency restrictions which prevent
payment. - Diversifyinto products or services which have a different risk
profile; avoid relying too much on one supplier. - Hedge– take action which will provide compensation if risk
occurs. The most typical area where hedging take place is
foreign currency transactions which might involve buying
the currency in advance. If the business is vulnerable to a
sudden fall in the stock market, an option can be bought to
provide funds if this happens. If the business is vulnerable to
one set of factors it can buy or acquire an interest in a busi-
ness which would prosper from such factors.
MANAGING RISK
The approaches to managing risk are:
■ recognize that risk assessment is a continuous activity – you
cannot take the risk of not assessing risk;
■ make risk assessment and management a major concern of
the board and top management;
■ ensure that everyone in the organization knows that they are
in the business of identifying, reporting on and managing
risks;
■ focus on the avoidance of unacceptable business risks
followed by the management of other business risks to
reduce them to an acceptable level;
178 How to be an Even Better Manager