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Risk Management in a Time of Uncertainty: Risk Manager’s Actions

25 November 2020

Risk Management in a Time of Uncertainty: Risk Manager’s Actions

Business is an activity at one’s own risk. A company can be affected by anything: an unreliable counterparty, changes in the market, an economic crisis. No one could have predicted the pandemic. If at the end of 2019 risk managers claimed that in a few months businesses would have to be closed or to be shifted into a remote mode, no one would believe them.

 

Sometimes you have to work in response to a situation. The companies that do not cope with risks terminate their activity. And those which “survive” are divided into the lucky ones and experts. Those which have made the right decisions and stayed afloat will become experts.

 

To avoid problems for business, a risk manager or a person who performs his/her functions needs to predict a situation and take certain actions or, to be precise, to prepare a plan and to follow its scenario. There is no place for experiments here, because under the circumstances of a crisis you need to make optimal decisions quickly.

 

To begin with, identify a threat, possible risks and communicate to the executives that this is important. To do this, you need to be able to persuade and to be authoritative in the eyes of the executives.

 

Then together with your colleagues you need to develop an action plan to minimize risks. The plan can be individual and depend on a company. For example, the replenishment of warehouse stocks, the organization of a delivery service, the revision of agreements with counterparties, the plan of the uninterrupted operation or, on the contrary, the strategy of a business stop. It is necessary to take into account everything – from production to employees’ possible loss of jobs.

 

As for the agreements with counterparties, you can speed up “closing” of the contracts that are close to their performance. Fulfilled obligations are better than those deferred for an unknown period.

 

Do not also forget to regularly check the counterparties you already work with. Your partners’ business may be closed, and this will definitely affect the agreements.

 

Read more: A Counterparty-Bankrupt: What Are the Consequences for the Company?

 

Create a financial cushion. For example, in the anti-crisis planning there is the practice of hedging currency risks.

 

Follow the agreed scenario. And it is desirable to consider several options of the events development. There are no unmanageable risks. You can break down a risk into components and work with those components that are possible to be influenced.

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