A risk-free Christmas

Posted on 22 Dec 2010 by The Manufacturer

It’s one of the busiest times of the year for manufacturers. Tim Astley from Zurich Risk Engineering looks at what’s keeping them awake at night and how can they have sweet dreams over the Christmas period.

What’s risk got to do with it?
Society’s tolerance of risk and what are acceptable working conditions have changed dramatically over the years, primarily for the better. Workers want to know that they are safe and not risking their health when operating machinery, transporting parts or even simply sitting at their computers for long periods. For employers, it is important to have a clear picture of where they stand and what they need to do to comply with the law and avoid litigation.

Based upon our experience with clients that range from small businesses to large corporations, we have identified the top five risks that we have found manufacturers face on a day-to-day basis and, in a series of blog posts over the next few weeks, we will be looking at these in more detail.

The top five are: Emerging markets; Regulation and compliance; Green concerns; Mergers and alliances; and Supply chain.

It’s clear that the risks manufacturers face are not only numerous but extraordinarily diverse. Therefore, the question we need to ask is: how do you run and grow your business efficiently and cost-effectively whilst simultaneously managing the threats that surround the entire process?

Managing the risk
An organisation wishing to become more resilient, will concentrate on risk management because it will create a more solid foundation for successful achievement of operational and strategic objectives. This serves to protect AND enhance the key ‘intangible’ concerns of reputation, brand and market share. One advantage of this is that stakeholders can see that the organisation is on the front foot and can be thought of as a ‘good’ risk.

Insurers like Zurich certainly like good risks, whatever the type of cover being provided. They seek assurance, and will give credit, for measures in place that can demonstrate how well the risk is understood and is being managed. Customers too, especially those dependent on suppliers for key materials, components or finished goods, like to know that risks in the supply chain are being handled appropriately. A few manufacturers are beginning to recognise the need to go beyond the traditional measures of supplier performance (quality, cost and delivery) in order to understand the broader risks.

Insurance is usually only one part of the risk strategy and actions to mitigate the risk normally precede any decision on insurance. Similarly, it may be appropriate to put in place continuity planning measures that ensure critical activities are protected and can be restored in the event of a major incident.

Where to start?
The key is to adopt a broad enough perspective to address the necessary areas of risk in the first place. This perspective very often extends beyond the organisation and ways need to be found to engage relevant outside bodies such as partners, suppliers and customers. Resources must then be prioritised to deal with those actions that have the greatest influence on the preservation and enhancement of organisational resilience.

One way to start analysing which risks could have the greatest influence, and therefore to identify mitigation priorities, is to address the relevant issues among the universe of risks. At Zurich, we have created a ‘risk wheel’ which categorises risks into the following groups:

• Strategic – e.g. reputation, mergers, intellectual property

• Financial – for example issues around currencies, capital markets and liquidity

• Market – e.g. geography, competition, trade barriers

• Operational– e.g. business interruptions, interdependencies, bottlenecks

• People – e.g. recruitment, knowledge management, health and safety

Above all else, it is of vital importance to understand that managing risk is an ongoing business and that risk is constantly evolving. Analysis of key risks for a company must be re-visited constantly and consistently. Only that way can a company reach its full potential without having to worry about anything that might go ‘bump’ in the night.

Tim Astley, strategic risk consultant, Zurich Risk Engineering