Risk Management for Profit

We all know how fine a line there is between profit and loss, maybe only 2% – 3% of turnover, if you do it well. So figure out how much turnover that last bad debt actually cost you or how much of your profit is lost every time your press comes to a standstill.

For many companies, increasing margins by 1% and reducing costs by 1% would mean doubling their after tax profit. Do the maths, marginal gain means big gains in profitability.

The following article is a spin on Risk Mitigation as a competitive advantage.

Risk management as a potential competitive advantage for a printing company.

Article by Tom Hickman.

Risk can be defined as the perceived uncertain future event that could prevent the achievement of the company’s objectives. Risk can come from uncertainty due to internal or external factors such as disruptive technology, unplanned stoppage and waste from inconsistent quality of consumables and others.

Risk management is the process of minimizing or mitigating the risk. It starts with the identification and evaluation of suppliers (equipment and consumables) and resources to monitor and minimize it for optimal use.

Risk terms:
Inherent risk -the risk to the entity before management action to alter the risk’s probability of an event and its size of its consequences.
Residual risk – the remaining risk after management has put in place measure to control the inherent risk.
Risk appetite – the amount of risk an organization is willing to accept in pursuit of value after considering probability and consequence / impact.

In the printing industry the risk appetite is quite low. Risk is measured as a function of the likelihood of an event and its consequences or impact. In the printing industry quality systems and managing risk are of high importance to mitigate uncertain future outcomes.

To gain a competitive advantage we build a strategy around risk prevention, taking into account the outcome of an event and how likely it is. Once you have decided on the risk appetite we identify risks, assess the risks on a scale of 1 to 5 for probability and 1 to 5 on consequence / impact. Where 5×5 is the highest rating and 1 x1 the lowest.
Strategic risks emanate from the choices made by the entity, specifically with regard to whether such choices weaken or strengthen the entity’s ability to perform its mandate. Strategic risk identification should precede the finalization of strategic choice to ensure that potential risk issues are factored into the decision making process for selecting the strategic options.

Warren Buffet on taking risks: “Never test the depth of river with both feet”

The competitive advantage for a business is in the risk response and plans to mitigate and control risk for reward better than the competition. The strategy to take inherent risk to our desired residual risk should be measured and monitored by implementing a risk register as it is impossible to provide transparency of success or failure without performance measurement.

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