A popular topic of conversation for podcasts, news articles and books is goal setting. A new approach to this common theme is to frame goal setting as a road map or GPS. For a navigational system to work properly, you must know your current location and desired destination. A GPS not only tells you how to reach your destination, but it also looks ahead and alerts you of any potential road blocks, and suggests alternate routes along the way. If you accidentally take a wrong turn, the system notifies you and efficiently navigates you back on track.
Many businesses go through goal setting processes each year – creating budgets, refining processes, and setting individual and department objectives aligned to move the company towards a defined destination. But many companies fail to acknowledge the road blocks that may come up on their business’ GPS. Taking the time to discuss potential business risks can be just as important as setting the destination itself.
What is Business Risk?
Business risk management is an area that is often overlooked by small to midsize business owners and management because the subject sometimes has a reputation for being a fruitless compliance exercise. However, business owners need to rethink their company’s stance on risk management as it can be a simple process that can potentially add significant value to an organization.
As with GPS, business risk management allows a company to avoid potential road blocks while navigating towards their desired destination. It can help identify both internal and external vulnerabilities, and alert the company of preemptive actions to take when certain situations arise, helping the company stay on the right track.
How do companies use Business Risk as a goal setting tool?
First thing’s first, companies must determine where they are to establish where they want to go. Many businesses define a 3-5 year goal, with a stretch vision for 10 years in the future. Companies must have this in place before they can chart their roadmap to the destination.
Let’s assume Company XYZ has clearly defined their target goal with detailed plans and actions for each department. But what they may have not considered are the possibilities of delays, traffic jams or wrong turns unmarked on their company’s road map. How can a company prepare for these unfavorable conditions if they don’t know what they are? Looking ahead to identify those potential hurtles and preemptively planning for how to deal with them is business risk management.
To plan for possible road blocks, companies should consider the following questions from Risk Assessment for Mid-Sized Organizations: COSO Tools for a Tailored Approach by Scott McKay, CPA, CPE, CIA, CCSA:
- What are the company’s primary business goals?
- What are the key business components that are necessary to achieve these goals?
- What internal factors or events could derail these business components?
- What external factors or events could derail these business components?
- What are the 3 most significant risk events that impact the business’ ability to achieve our objectives?
- What types of catastrophic risks does the organization face? How prepared is the organization to handle them if they occur?
- What factors could impact third parties, such as vendors or service providers?
- Should the organization be aware of any significant financial market risks?
- What current or developing legal, regulatory, and governmental events or risks might be significant to the success of the business?
Discussing these questions can be a constructive exercise to include in the company’s annual goal setting process. Companies and their management teams should continually look ahead to identify risks that could prevent the organization from reaching its desired destination. Setting the company’s business GPS does not have to be a painstaking activity, but it can make for a smoother ride along the way.