I was talking to a client recently about the bigger risks that could seriously harm their company. He cited a recent example where a newly acquired small entity almost caused the parent company to be delisted from their exchange. The acquired company refused to share some of their financial information with the parent and as a result they weren’t able to file quarterly reports until the subsidiary was sold. They came within a inch of being delisted.

Every company has hidden liabilities such as this. Some are obvious such as having too much reliance on a single customer for revenue, or too much reliance on a single supplier for goods or services. In other cases the problem is equally risky but not as obvious. An effective way to get visibility on ALL of these major risks is to combine business continuity planning (BCP) with risk management.

Risk management tries to determine the likelihood of uncertain events occurring, while BCP assumes these uncertain events occur and plans alternate routes and recoveries. During your risk identification process you will inquire about events that may prevent your company from achieving its objectives. Try reverse engineering this process to say, “assume that this objective fails – what events could cause this to happen?”. The answers you receive will include catastrophic risks that no one assumes will happen.

For example, asking about risks related to loosing a big revenue stream may result in a limited list of risks due to optimism about how the company is operating. However, assuming that the big revenue stream just disappeared, and asking for potential causes, will uncover new potential risks. The optimism that blinds you to potential risk will be replaced by creative thinking about previously unconsidered risks.

A case in point is the recent volcanic eruption in Iceland that grounded entire fleets of planes. If you asked what risks would ground an entire fleet, volcanoes may not have been identified. But assuming the entire fleet has just been grounded, and asking for potential reasons why, will prompt potentially uncreative people to think more broadly.

by Richard Wilson
BPS Resolver Risk Advisory Practice Leader
richard.wilson@bpsresolver.com