The steps of the risk management process: an example from B2B
The approach to business risk is described by numerous theoretical frameworks, more or less complex. Starting from the assumption that there is not one that is valid for every company, there are activities that cannot be missing from a complete risk management strategy.
- The identification of risks in the light of the company’s mission and objectives;
- Their evaluation on the basis of qualitative, quantitative and hybrid methodologies: how likely is it that a risk will occur? With what effects? What are the costs to be incurred to manage them?
- Their management, based on precise choices. Which ones should be managed internally? Which ones are best protected against by insurance? Are there some that can be ignored because they are irrelevant?
- The analysis of management results, to take corrective action and develop more efficient procedures.
Let’s go back to the SME mentioned earlier.
The company, which specializes in components for industrial automation, is faced with an unforeseen situation that affects almost all areas of the company.
The owners thus realize that the strategy adopted up to that point was short-sighted: crisis bring with them failures, and the principle also applies to their customers.
Of course, foreseeing such an event is not easy, which is why a comprehensive risk assessment must balance the probability of its occurrence with the severity of its impact.
For a company like the one in our example, the loss of even one customer, however remote, represents a very serious risk, given the poor differentiation of the customer portfolio.
Ownership thus decides to adopt a differentiation strategy, identifying new potential buyers abroad in markets where demand is growing.
Not only that: the same principle is also applied upstream along the supply chain to protect against a potential supply risk. One of the company’s suppliers, in fact, has recently started delaying shipments of key components due to production problems.
Finally, a performance monitoring system is established on a quarterly basis to verify the results of the choices made. The financial area, together with the sales department, will be responsible for checking the data and identifying any critical points.
What is the impact of new sales on cash flow? Are the new customers satisfied and is it possible to build a long-term relationship? Do alternative suppliers have competitive prices that can be renegotiated in the medium term?
These are some of the questions to be answered.
But first, it is necessary to identify the right tools to manage the risk. B2B market analysis is one of them. Let us see why.