Don’t Let Ignored ERM, Uncertainty, or Liquidity Risks Sink Your Company

October 9, 2008

Don’t Let Ignored ERM, Uncertainty, or Liquidity Risks Sink Your Company

As we are learning the hard way in todays economy, cash is king; without it, your company may be at risk. Whenever the economy hits a rough patch, companies turn to less defined financial issues like risk, uncertainty, liquidity or even enterprise risk management (ERM).

Having an accurate read on your company financial underbelly is even more critical in turbulent economic times. This includes unearthing and managing the seemingly invisible profit leaks that put your company cash flow at risk.

ERM Defined

Enterprise Risk Management (ERM) is defined as the methods and processes used by organizations to manage risks (or seize calculated risk opportunities) in relation to achieving their company objectives. While executive teams may have their reasons for delaying the implementation of an ERM plan, the truth is that every company needs one. Simply put, it is not a matter of if but a matter of when a company will put an ERM strategy in place.

Wanda A. Wallace, president and CEO of Leadership Forum, Inc., and others like her issued warnings of the pending financial crisis dating back to the 1990s. In her August 1999 article, “Risk Evaluation: Just Who Is Minding the Store?”–published in Accounting Today, Wallace warned that all market participants need to be assessing risks, rather than presuming the risks have been effectively shifted.

This warning is relevant today. Company leaders must take responsibility for identifying and managing the risks that may unwittingly threaten the survival of their companies. Below are a few starting points that will get your executive team thinking about how to manage your company risk while staying the course in these risk-fraught times.

1. Acknowledge that real risks exist in your company
2. Make a reasonable effort to analyze the risks your company is taking
3. Evaluate the consequences of those risks should these risks back fire
4. Estimate what the costs would be to solve, eliminate, or minimize those risks
5. Look for profit leaks that may be threatening your company cash flow - a huge risk!
6. Implement a flexible ERM strategy that you can adjust as needed

For those still asking how does this apply to me and how can I safeguard my business and possibly find an opportunity in this catastrophe, the preceding paragraphs suggest a starting place.

Think of the similarities of your business to a ship. Both have leaders, a president and a Captain or Skipper. Both leaders have major difficulties seeing below their direct reports, or through or under the ship’s deck. Both have leaks that are ongoing.

You might not know that water always leaks in ships. The secret is to pump the leaking water out faster than new or larger leaks grow. When this is done the ship, or Company, can sail on to dream destinations, or a company to its dream targets or goals. Or, both can sink from apparently invisible leaks.

Also visualize how an iceberg, remember movies or stories about the Titanic, of foreseeable outside events can quickly sink an unsinkable ship, or seemingly vibrant business. The key is to help you find and fix those profit leaks, so you do not list or sink, and can stay afloat toward your dream goals.

Or you could keep your head in the sand and hope things blow up on your successor. Of course, if they blow up on you, your successor will lay all the blame on you for not taking the steps above.

Bottom line? - Stop Profit Leaks Now. Apply this information to improve your profitability, reengineer business models, and strengthen or gain competitive advantage in the marketplace. And apply the free Fiscal Test at http://fiscaldoctor.com/fiscaltest.html.

Tags : ERM, enterprise risk management,business coach,business consulting services,risk,liquidity,uncertain