Page 17 - RMAI BULLETIN Oct - Dec 2019

RMAI BULLETIN OCTOBER TO DECEMBER 2019

cover across the critical business functions. This 4. FINANCIAL RATIO ANALYSIS - liquidity, asset
information will need to be circulated internally. The management, and similar checks on organizations
firm will also need to re-evaluate their home and can be usefully undertaken. It can be said that a
flexible working policies to ensure that employees can company should know in detail about its own
connect to the office from home so that the business is areas, however, key customers and suppliers
able to maintain critical cover for the vital operations. should also be considered. The effect of a key
There will need to be company-wide access, to the supplierorcustomergoingoutofbusinesscouldbe
web, audio and data conferencing services. These
a real problem when the company is stretching
measures will ensure that there is a seamless
itselffinancially.
interaction between the office, its staff, suppliers and
customers. The firm also needs to liaise with key 5. CURRENCY ANALYSIS - this is important for
customers and suppliers to ensure that any international organizations as a major shift in
contingency plans are dovetailed and that in the event currencies could quickly wipe out the profitability
of a disaster all parties understand exactly who and ofanoverseasstrategyoption.
howkeypersonnelcanbecontacted.
6. SENSITIVITYANALYSIS- thisis not onlyuseful but is
regarded as a part of basic strategy evaluation. It
For each risk identified, it is necessary to decide on a
explores the 'What if?' questions for their impact
course of action. Here a business can accept it, transfer
on the strategy under investigation. The basic
it, reduce it or take steps to avoid it altogether.
Insurance, financial derivatives and outsourcing are assumptions behind each option, for example,
waysoftransferringrisk.Abusinesscanreduceoravoid pricing, growth, currency fluctuations etc. are
risk by reducing its exposure or pulling out of a varied and the impact is measured a return on
particular market. However, what is equally important capital employed, cash and other business
is to make sure that the cost of action is not going to be objectives.Theresultsofallsensitivityanalysescan
higher than the cost of the risk itself. For most strategy provide those selecting the strategies with a useful
proposals it is important to undertake some farm of estimateoftherisksinvolved.
analysis of the financial risks involved in the strategy
options. A number of types of analysis can be Implementation of Risk Management
undertakenascomprehensiveasstatedbelow:
1. CASH FLOW ANALYSIS - this analysis is essential. A Programme-ItsEvaluation/Review:
business can report good levels of profitability at The next step in the process of risk management by
the same time as going bankrupt through lack of individuals and businesses is implementation and
cash. monitoring of the programme to achieve the
objectives. To achieve the goal and to make the
2. BREAK-EVEN ANALYSIS - this is also a useful
programme effective, a periodic review of the
approach. It calculates the volume sales of the
business required to recover the initial investment programme is called in order to determine whether or
in the business. Here the important point is to not the objectives of the risk programme are being
explorewhetherthisvolumeisreasonableornot. realized. This step will be helpful in modifying the
programme, if found necessary, in the light of the
3. COMPANY BORROWING REQUIREMENTS - the recordofexperience.
impact of some strategies could severely impact on
the funds required from other financial institutions
and/orshareholders. Continued in next issue

Risk comes with the territory when you are breaking new ground. Learn how to

evaluate and mitigate these risks rather than take away people s power and
autonomy.
- Leena Patel

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