Imagine a world where you could run your business without worrying about anything unexpected coming along to knock you off track. No economic downturns, no new government regulations, no natural disasters, no accidents on site, no nightmare customers, no staffing issues, no defective products, no unpaid bills, no stolen tools.
Wouldn’t that be wonderful? But unrealistic, right? Wrong.
OK, so you might not be able to stop the ground from shaking, or prevent a global financial crisis, or indeed any of those things from happening. But what you can do is plan for them, so that when they do happen, you’re prepared and can minimise their impact. Which is basically the same thing. It just requires a bit of preparation and time. That sounds like a deal worth making, right? If you think so, you’ve mastered one of the most important aspects of running a business: Eliminating uncertainty by managing risk.
Risk can be managed in any number of ways:
- Ignore (or accept) it
- Eliminate it
- Avoid it
- Reduce it
- Transfer it
How you do that depends on the scale and likelihood of each risk. Then, identifying the most cost-effective approach to managing each risk. The options may include:
- Training
- Written policies
- Systems and processes
- Professional advice
- Contractual terms & conditions
- Insurance
Business Continuity Planning
A Business Continuity Plan (BCP) allows you to prepare in advance the processes and procedures to help you cope with unexpected events, minimise disruption and get back to work faster.
Building Your Plan
This process can be daunting and almost never gets done without a structure and support to help. This support would typically take the form of an experienced risk advisor, guiding your teams via a series of workshops, through a process that involves risk identification and quantification.
Next is identifying the most cost-effective risk mitigation strategy to treat each risk, which all feeds into your comprehensive risk management and business continuity plans. This typically includes implementation of a dedicated risk management portal, which allows the business to maintain and monitor its plan in real time, consolidating the key information, contact details, procedures and documents required in the event of a crisis.
STEP 1: Risk Identification
Without a meaningful categorisation, this can be difficult.
Categories of risk may include:
- Natural Risk
- Technology Risk
- Supply Chain Risk
- Product Liability Risk
- Economic Risk
- Reputational Risk
- Governance and Legal Risk
- Security Risk
- Workspace Risk
- Environmental Risk
- Financial Risk
- Human Risk
- Business Risk
Within each category are individual hazards. An experienced risk adviser assists senior leadership to identify all the hazards relevant to their business.
STEP 2: Quantify the potential cost of each risk
This can often be more art than science but serves a dual role. Firstly, it allows all risks to be ranked according to their effect on the business, from the greatest effect to the least. Secondly, it means the cost of any risk mitigation strategy can be weighed up against the cost of the risk itself. This means the business can implement the most cost-effective risk mitigation strategies in order to maximise return/minimise risk per dollar invested. More on this next time.
In summary
Eliminating risk might be impossible, but planning for a crisis and minimising the cost of risk is one of the most important roles of senior leadership in any construction business. Yet many are not adequately doing so, or doing so in a haphazard way that can lead to gaps and an inefficient return on their risk mitigation investment.
Builtin are New Zealand’s Trade Insurance Experts
For more information visit builtininsurance.co.nz
or contact Ben Rickard, Construction Risk Adviser and Director | ben@builtin.co.nz | 0800 BUILTIN
Disclosure: The information presented in this article is general in nature and not intended to be financial advice for individual situations. You should speak to an expert about your specific circumstances and needs.
