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Business risk management without any gaps

12 June 2023 JP Blignaut, CEO at Bryte Insurance

Business risk can never be eliminated, but it can be managed intelligently. In a period of heightened uncertainty, managing risk becomes more complex and urgent.

We have compiled some of the significant – sometimes unappreciated – challenges South African businesses face and how to effectively manage them.

1. Do you have a complete view of the risks across your value chain?
No business is an island. Even small and medium enterprises operate within a complex network of interdependence with suppliers, partners and customers. For larger firms, value chains are exponentially more complicated.

If key service providers or suppliers go under, a business may face an unexpected scramble to find a replacement or try to manage previously outsourced services in-house. Therefore, developing a mechanism to anticipate potential issues with partners and develop contingency plans if you need to adapt quickly is good practice.

Here are some important but often overlooked risks that any business needs to be aware of in our increasingly turbulent business environment.

i. Is your expanded inventory protected?
Many companies updated their supply strategies in response to the global supply shortages of the post-lockdown period. Some businesses turned away from lean ‘Just in Time’ models to start keeping a more extensive inventory to provide a buffer against shortages.

However, sitting on more goods, or stockpiling more raw materials, might require a higher investment in securing those goods. Loss due to theft, fire or some other cause could translate into a significant financial hit. Businesses should, therefore, regularly audit their security, hazard protection and level of insurance cover to ensure these are suitable for changing inventory realities.

ii. Do remote workers have the resources they need?
Working from home and flexible in-office/work-from-home schedules have become common. But South African employees face unique challenges. Many have already implemented strategies to help mitigate load shedding, such as UPS systems to keep their internet working while the power is out. However, increased loadshedding volatility (or if the unthinkable happens and there is a total grid collapse) could mean that additional technologies and processes may be required, such as employer-subsidised solar installations or inverters at key employees’ homes.

2. Are you working with the right experts to help you manage all relevant risks?
The recent Silicon Valley Bank collapse offers an important lesson: many startups who deposited their cash with SVB lacked a CFO tasked with running a treasury function and assessing whether their deposits were safe. It illustrates how expert advice isn’t just about navigating the risks you’re aware of; it can help ensure you are aware of the perils your business faces in the first place.

i. Is your IT up to industry standard?
Hacking, phishing scams and data breaches are perennial problems of the information economy. But they are more than mere nuisances. If you suffer a data breach, and customer information has not been adequately protected, you could be in real regulatory trouble (by being in contravention of POPIA and other relevant laws). If that’s not bad enough, the reputational fallout for a business that can’t protect its users’ private data can be devastating.

A proficient IT security specialist can comprehensively audit your IT technology and your processes, including whether partners are a weak link to the IT value chain.

Industries that deal with sensitive information must properly train all relevant staff in rigorous IT security protocols and ensure they have the appropriate technology installed (such as best-in-class firewalls and encryption).

3. Is your insurance coverage relevant to the current moment?
Taking out business insurance is risk management 101. But a lot has changed in recent years. During the COVID period, several exclusions were introduced to reflect changing economic and policy realities. And loadshedding has introduced a new set of complications. As mentioned above, there’s no substitute for an expert to offer domain-specific risk advice. And insurance is no exception. That’s why it’s highly advisable to regularly check in with your broker or insurer to ensure you understand your level of coverage and precisely what you are covered for.

Here are some common insurance risks that many businesses may be overlooking:

i. Is your cover keeping up with inflation? And are you actually covered for all relevant risks?
ii. How does loadshedding affect your insurance?
iii. Are you effectively anticipating climate risk?

Risk protection needs to be systematic.
This is not meant as an exhaustive account of all the severe risks South African business face. The point, rather, is to show that risk is complex, interconnected, and – by definition – challenging to predict. Consequently, sound risk management isn’t about anticipating everything that could go wrong but about thinking systematically in an integrated way. To achieve this, even the most sophisticated businesses will benefit from professional advice that provides domain expertise and enables them to perceive risk at scale.

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