5 Steps to Manage Risk and Lead in Unpredictable Times

With constant shifts in economic demands and consumer behavior, businesses need to remain agile to survive. This means that leaders need to stay abreast latest tools and insights to steer their businesses to consistent growth.

Traditional leadership models, grounded in past insights, often struggle to tackle the complex challenges of our time. Given the advancements in artificial intelligence, climate change, and significant socio-political upheavals, we can’t deny that unpredictability seems to be the name of the game when it comes to navigating business.

Needless to say that the current climate of challenges demand more a purposeful leadership framework. Adaptive leadership, with its emphasis on agility and resilience, is precisely that.

In this article, we take a look at some of the challenges plaguing businesses today and discuss some of the key adaptive leadership strategies required to navigate economic challenges successfully.

Common challenges faced by SMBs

Volatile markets pose a heightened risk for businesses as they often lack the resources to absorb sudden financial shocks, impacting cash flow, profitability, and overall stability. Here are just a few examples of how different types of volatility can affect your business.

1. Price volatility

Price fluctuations in commodities and raw materials wield a potent influence on SMEs. Steep price hikes force businesses to navigate reduced profit margins or raise the asking price of their products and services. Unlike larger enterprises, SMEs lack the capacity and resources to procure materials in bulk, leaving them vulnerable to rapid price surges with no buffer.

2. Fluctuations in currency conversions

Volatility in the foreign exchange market can work in favor of or against small to medium-sized businesses (SMBs). This is because business in a country with a strong currency looking to import goods from a country with a weaker currency can make a profit. But, the opposite is also true. When currency relationships become too volatile, this can impact the normal affairs of businesses that import and export products.

3. Political instability

Political instability often leads to economic downturns that impact businesses in general. The service sector, typically the first to bear the brunt, suffers during such downturns. Subsequently, essential goods and service providers, integral to the service sector, find themselves unable to withstand the upheaval.

Manage risk and lead in unpredictable times

Strong leaders enable businesses to focus on the most important aspects of operations during periods of crises.

In uncertain times, active leadership in risk management involves the following steps:

  • First, it’s about spotting and prioritizing risks using helpful tools like SWOT analysis or risk matrices.
  • Next, creating a solid risk management plan is crucial. This plan includes setting clear risk limits and planning how to respond if things go wrong.
  • When things are uncertain, making smart decisions is vital. Successful leaders share techniques like scenario planning and stress-testing to make the best choices during chaotic times. They also encourage businesses to diversify their investments, products, or services to spread risk.
  • Lastly, being an active leader in risk management means regularly reviewing and updating the plan to keep up with changes and stay strong.

1. Identify and prioritize risks

The fundamental risk management tool used to prioritize risks is the risk register. What the risk register does is ask business owners to sit down and think about the risks to their business. You would need to jot down immediate risks to your business and prioritize these risks in terms of most to least urgent and detrimental and assign someone to address them.

SWOT stands for “strengths, weaknesses, opportunities, and threats.” This is another tool to identify risk. Start with the strengths and determine what aspects of your business are secure. Next, the weaknesses are things that could be improved upon. Opportunities define positive risk, whereas threats outline negative risk. This will help your business understand where it is most vulnerable and where it can excel during challenges.

2. Develop a risk management plan

The initial step in crafting a risk management plan for businesses involves defining the risks the business may encounter. These risks encompass various circumstances or events that could have a negative impact, such as natural disasters, political upheaval, or shifts in currency values. The specific types of risks will vary from one business to another.

After defining potential risks, the next step is to identify them systematically. This entails thoroughly examining the types of risks your business might face. By doing so, you can clearly understand possible problems and assess their severity. This understanding empowers you to effectively determine the necessary actions to mitigate these risks.

Businesses that successfully navigate volatility often excel due to exceptional planning and staying ahead of potential risks. A well-structured risk management plan is a critical component of this preparation. It’s important to recognize that no risk management strategy is infallible. It must remain flexible and adaptable to changing business conditions. Even the best plan can quickly become ineffective if it’s not updated and adjusted to align with evolving circumstances.

3. Make informed decisions in uncertain times

Being able to make the most considered decisions during uncertain times is a skill that can be developed through careful planning. The starting point involves becoming aware of potential problems, such as overconfidence and excessive fear of risks. Following this, draw from past experiences while being mindful not to dwell too long on what did or didn’t work.

The third step entails envisioning the worst-case scenario and understanding what factors could lead to it. Adopt the role of a devil’s advocate, actively seeking out potential issues that might have been missed if the focus was solely on positive outcomes. This proactive approach helps uncover blind spots and enhances decision-making in the face of uncertainty.

4. Venture into diversification and hedging

Small and medium-sized businesses (SMBs) should diversify in several ways to spread risk. They can offer various products or services, venture into different markets, invest in various asset classes, collaborate with others, embrace technology, segment their customer base, and manage supply chain diversity. By not relying on a single product, market, or investment type, SMBs can safeguard themselves against economic fluctuations and unforeseen challenges, enhancing their resilience and potential for growth.

5. Review and revise

Regularly reviewing and revising the risk management plan is of paramount importance. As situations evolve, the dynamics of risks change. Revisiting the plan ensures its alignment with current circumstances and enables necessary adjustments to enhance its effectiveness. An up-to-date and adaptable risk management plan equips businesses to swiftly navigate evolving challenges and make informed decisions to safeguard their interests.

Partner with an expert to prepare for tomorrow

In today’s unpredictable economies, being flexible in how you lead and staying ahead in managing risks are game-changers for businesses. To stay abreast of the challenges and navigate crises in the best way possible, you can partner with an expert who understands market volatility in relation to your particular trade.

Adaptive leadership is about dealing with problems as they come, foreseeing them, and getting ready. A CPA acting in the role of business advisor can help you become proactive in handling risks. To make it through the ups and downs, businesses need to be able to adapt fast, grab opportunities, and navigate the twists and turns of a constantly changing economy.

At Fusion CPA, we’ve guided businesses of all sizes through uncertain times. Our CPAs analyze markets to understand the safest routes for businesses to take when faced with uncertainty. We can help you analyze your numbers and set up processes to help you navigate unstable terrain. Contact us to consult with our experts today!

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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. We base articles on current or proposed tax rules at the time of writing and do not update older posts for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.