Enterprise Risk Management (ERM) is the process of identifying, assessing, and managing risks that could potentially impact an organisations operations and objectives. Blockchain technology, with its unique features of transparency, immutability, and security, has the potential to support ERM in several ways.
Firstly, Blockchain can help in the identification and assessment of risks by providing a tamper-proof and auditable record of all transactions and activities within an organization. This enables the ERM team to have a comprehensive view of the organisation’s operations and identify potential risks accurately.
Supply Chain Risks
Secondly, Blockchain can help in the management of risks by providing real-time tracking and monitoring of activities. The biggest risk in large organisations now is the supply chain and knowing goods will arrive to the correct specification and most importantly on time. Smart contracts can be used to automate and enforce compliance with internal controls and policies, reducing the likelihood of errors and fraud.
Thirdly, Blockchain can help in the mitigation of risks by providing a decentralized and secure platform for data sharing and collaboration. This can facilitate better communication and coordination between different departments and stakeholders, enabling faster and more effective decision-making in response to emerging risks.
Finally, Blockchain can help in the measurement and reporting of risks by providing a reliable and transparent source of data for risk analysis and reporting. This can enable the ERM team to demonstrate the effectiveness of their risk management strategies and provide stakeholders with greater visibility into the organization’s risk profile.
In conclusion, Blockchain has the potential to support ERM by enhancing the identification, assessment, management, mitigation, and reporting of risks in organizations. As such, it can be a valuable tool for organisations looking to strengthen their risk management capabilities and improve their overall resilience.
Business failure is a common occurrence and can happen to companies of all sizes and industries. According to a recent study, about 20% of small businesses fail within their first year, and about 50% fail within their fifth year. There are many reasons why businesses fail, and it is often a combination of factors that lead to a company’s demise.
One of the primary reasons for business failure is lack of market demand for the product or service being offered. This can happen when a company fails to conduct thorough market research before launching a product or service. Without understanding the target market and their needs, a business may be offering a product or service that is not in demand, leading to poor sales and ultimately, failure.
Poor management is another common reason for business failure. This can happen when a business owner lacks the necessary skills or experience to effectively manage the company, or when there is a lack of clear direction and goals for the business. Without strong leadership, a business can quickly become disorganized and inefficient, leading to poor performance and ultimately, failure.
Inadequate funding is also a major reason why businesses fail. Starting and running a business requires a significant amount of capital, and without sufficient funding, a business may not be able to cover its expenses, pay its employees, or invest in necessary equipment or technology. A business may also fail due to poor financial management, such as overspending or failing to properly budget for expenses.
Intense competition is another common reason for business failure. In a crowded marketplace, it can be difficult for a business to stand out and attract customers. Without a unique value proposition or differentiating factor, a business may struggle to compete against larger, more established companies.
External factors such as economic downturns or natural disasters can also play a role in a business’s failure. Economic downturns can lead to a decrease in consumer spending, making it more difficult for businesses to generate revenue. Natural disasters can cause physical damage to a business’s property and disrupt operations, making it difficult for a business to recover.
In summary, business failure can happen for a variety of reasons, such as lack of market demand for the product or service, poor management, inadequate funding, and intense competition. Additionally, businesses may also fail due to external factors such as economic downturns or natural disasters. It is important for business owners to conduct thorough market research and have a well-crafted business plan in place in order to increase the chances of success.
My passion has always been analysing what makes companies successful and why competitors in the same marketspace fail. I won’t go right back to the 1970s when insurance companies were using risk as a calculator to assess potential claims, but I will start at the point in time when I started to notice significant change in the adoption of risk management for day-to-day business activity. In the early 2000s a quality manager was mainly responsible for compliance and certification until risk started to appear in certification documents like ISO 9001 as a process that required management activity to provide evidence controls were in place.
Risk Registers were used as a control mechanism for capturing and controlling business risk and this activity was generally handled by the Quality Manager at the time. Fast forward twenty years and risk management has become one of the most important roles within the org structure of a business. Software developers have capitalised on this growing trend by introducing risk management software that allows SMEs to quantitatively account for risk in forecasting and decision making, for example a Monte Carlo simulation would be used to handle an extensive range of problems in a variety of different fields to understand the impact of risk and uncertainty.
Now on the spectrum there is also enterprise risk management where risks are placed in the centralised hub of the business to seize opportunities related to the achievement of their strategic objectives, or through opportunities that gain a competitive advantage. In a nutshell managing risk equates to improved business excellence, higher turnover, and increased profits.
Risk is underrated when it comes to the long-term stability and growth of a business due to the function of having a top down visual of the business outputs and being able to analyse how far its off track from achieving its annual objectives.
Making a Difference
I have twenty plus years of business knowledge and every time I have been involved with a failing operation or loss-making project, I analyse the information flow with the points below, identifying key areas of business failure.
Poor cashflow management
Lack of financial control
Poor planning and lack of strategy
Weak leadership and lack of employee engagement
Not understanding the macro picture with regards to competitor analysis
These are all top business risks that require a high-level mitigation plan with a strategy for continual improvement. Methodical and strategic planning, underpinned by extensive research, will enable you to determine, analyse, and monitor the viability and functioning of your business and the market in which it operates. As a result, your business is less likely to fail. You will have a far greater awareness of what is going on, which will enable you to respond quickly when existing or potential problems are identified.
The worst time to be in business
This must be one of the most challenging times to be in business with Russia and Ukraine pushing worldwide instability and countries trying to recover from Covid with global markets at an all-time low.
Two things will make you succeed and overtake your competitors in these challenging times
Building multiple revenue streams to support the strength of the balance sheet
Strong focus around performing competitor analysis workshops to understand your performance in the marketspace.
Everything I have mentioned filters back to understanding your risks and knowing how to manage them and that will determine the difference between success and failure. I have been asked thousands of times over the years, why do businesses fail and if I had to put this into one word, I would say ‘stagnation’. Not focusing on technological advances and adapting to the ever-changing macro environment will result in guaranteed failure.
Macro analysis is part of a company’s strategic management that enables it to analyse and identify potential opportunities and hazards that might impact the business.
This has to be one of the major contributors to why businesses fail after a couple of years of trading. Its described as the major eternal and uncontrollable factor that influences the organisations decision making and effect its performance and strategies
Knowing and understanding the macro environment is the first move in creating the business strategy.
Questions to ask
What are our competitors doing that we are not
What outside forces are holding us back
Is the business legally compliant
How do I stand out from this competitive environment and attract new customers
How do we monitor our competitors movements throughout the year
You will get Macro Forces that are uncontrollable so the focus then turns to managing risk so you are able to adjust the companies strategy and keep the business on a successful upward trend.
The importance of PESTLE Analysis
Certain factors will aways be outside of your control and PESTLE will allow you to monitor what’s going on and what adjustments you need to make for continual business success.
How we break down PESTLE
Political factors and how they determine the extent to which a government may influence the economy
Economical factors as an example, the rise of inflation
Social factors that monitors cultural trends, demographics and population analytics
Technology factors that looks at innovations in technology that may affect the operations of the industry you specialise in
Legal factors and how new laws affect the business environment
Environmental factors that focus on climate, weather and issues like geographical location
A business should follow a strategy cycle in order to be successful then you will have a continual analysis loop, improving the businesses performance, so let’s understand what we have bullet pointed below.
Strategic Analysis should be the business six monthly macro review
Strategic decision where the senior leadership team act on the data analysis
Strategic implementation where we focus on making significant change
Strategic review is where we monitor those business KPIs
Business Improvement
Consider running a Macro analysis workshop every three months so you gauge where the business is, focusing on the strategic road map you have set beginning of each year.
This will keep the business alive long after your competitors have imploded
I consider myself a leading expert in business turnaround and revenue generation and by using six sigma techniques, I have always achieved the client’s objectives.
Contact – consult@robburrus.com
Six Sigma is a business management methodology aimed at improving the quality of process outputs by identifying and eliminating causes of defects (errors) and variability in manufacturing and business processes. Here are the general steps you could use to implement Six Sigma in your business to increase profitability:
Identify: Identify the problem or process that needs improvement. This could be any business area causing inefficiencies or high costs, such as poor customer service, low-quality products, high manufacturing costs, etc. Use data to clearly define the problem.
Measure: Use data to understand the current performance of the process. You can collect data about the frequency of defects, time taken for each process, costs involved, etc. Key metrics associated with your particular business will be useful here, such as manufacturing times, error rates, customer satisfaction scores, etc.
Analyze: Analyze the data to determine the root causes of defects and variability. You can use Six Sigma tools like Pareto Charts, Fishbone Diagrams, and 5 Whys for this analysis. The goal is to identify which factors are causing the problem and how they can be eliminated.
Improve: Develop and implement solutions to eliminate the root causes of defects. These solutions could involve changes in equipment, processes, personnel, training, etc. This phase also involves testing these solutions to ensure they effectively reduce defects and improve the process.
Control: Once the improvements have been made, it’s important to maintain control over the process to ensure that defects do not increase again. This might involve regular checks, continuous data collection and analysis, and further training.
Evaluate Profitability: After the implementation, evaluate how the reduction in defects and improvements in processes have translated into increased profitability. This could be through reduced costs, increased customer satisfaction, or increased sales.
Repeat: Six Sigma is a continuous process. Once one process has been improved, you can move on to the next one. Over time, this continuous improvement will lead to increased overall profitability.
Six Sigma for Risk Management
Six Sigma methodology can be very beneficial in risk management. Here’s how the steps of the DMAIC (Define, Measure, Analyze, Improve, Control) model can be applied in risk management:
Define: Define what risks you’re trying to manage. This could be operational risks, financial risks, market risks, credit risks, or any other type of risk that your organization faces. Create a clear risk management objective or goal.
Measure: Identify and measure the impact of these risks. This can involve developing metrics or KPIs that can give you a quantitative understanding of the risk. You need to collect data on these metrics over time. Examples could be incident reports, financial losses, frequency of certain events, etc.
Analyze: Use statistical analysis tools to understand the root cause of the risks. Identify patterns and trends in your data. Are certain types of risks more prevalent? What events or conditions lead to the occurrence of these risks? This phase might involve techniques like regression analysis, hypothesis testing, or cause-and-effect analysis.
Improve: Develop and implement strategies to mitigate these risks. This could involve changing business processes, implementing new technology, training employees, etc. After implementing the strategies, monitor if these changes are leading to a decrease in the risk metrics that you identified earlier.
Control: Once you’ve made improvements, you need to ensure that they’re sustained over time. This involves continuously monitoring your risk metrics and making further adjustments as necessary. It could also involve developing policies or procedures that prevent the re-occurrence of these risks.
An important Six Sigma tool that can be used for risk management is the Failure Mode and Effects Analysis (FMEA). FMEA is a systematic method for evaluating a process to identify where and how it might fail and to assess the relative impact of different failures. This tool helps prioritize the risks based on their severity, occurrence, and detection and guides the team to develop and implement controls to prevent or detect the risks.
Six Sigma also promotes a culture of data-driven decision-making, which can greatly enhance the effectiveness of risk management efforts. Instead of reacting to risks after they occur, you can use Six Sigma to proactively identify and manage risks before they cause significant harm to your organization.
The framework is designed to help management and boards of directors answer these relevant business questions:
What are all the risks to our business strategy and operations (coverage)?
How much risk are we willing to take (risk appetite)?
How do we govern risk-taking (culture, governance, and policies)?
How do we capture the information we need to manage these risks (risk data and infrastructure)?
How do we control the risks (control the environment)?
How do we know the size of the various risks (measurement and evaluation)?
What are we doing about these risks (response)?
What possible scenarios could hurt us (stress testing)?
How are various risks interrelated (stress testing)?
What is ERM
The framework applies regardless of the size of the business or how a company wishes to categorize its risks. The circular depiction of the framework is highly intentional. The individual components (such as coverage or risk appetite) are not meant to be sequential, but rather a dynamic flow in both directions. Additionally, culture is depicted as the center/heart/foundation since, without the right culture, the other components are somewhat irrelevant.
At any given time, boards of directors and management must manage a portfolio of risks (from asset quality, liquidity, and interest rate, to business continuity, information security, privacy, etc.).
Main benefits of ERM
Improved Decision-making: ERM provides a comprehensive perspective on risk and opportunity across the organization, which leads to better informed strategic and operational decisions. It helps to prioritize risks and determine the most effective ways to manage them.
Compliance: With increasing regulations in many industries, ERM helps organizations comply with laws and regulations. Non-compliance can lead to penalties and damage to an organization’s reputation.
Financial Stability: By identifying and mitigating risks, an organization can avoid potential financial losses. It can also help to secure better terms from banks and insurers, as they have confidence in the organization’s risk management.
Operational Improvement: ERM aids in identifying inefficiencies and designing processes to mitigate risks. It promotes a proactive approach to handling risks, leading to fewer crises and surprises.
Enhanced Strategic Planning: ERM supports strategic planning by helping to identify potential obstacles and opportunities. It helps management to align risk appetite with business strategy.
Stakeholder Confidence: By demonstrating that an organization is proactive about managing risks, ERM can increase the confidence of stakeholders, including investors, customers, employees, and the public.
Brand Protection: By identifying and mitigating potential risks, ERM helps protect the organization’s reputation and brand.
Better Resource Allocation: By identifying the risks that could have the greatest impact on the organization, ERM helps ensure that resources are allocated where they’re most needed.
Increased Competitive Advantage: Companies that manage risk effectively are often better positioned to adapt to changes in their market environment, giving them a competitive advantage.
Cultural Shift: Successful ERM implementation can result in a cultural shift within the organization, where every employee becomes a risk manager, creating a risk-aware culture.
The science and art of measurement in ERM is about concluding which risks are significant and which ones are not, and where to invest time, energy, and effort. To accomplish the goal of measurement and evaluation, a business may adopt a simple model of color rating (green, yellow, and red) to a highly sophisticated risk-adjusted return on capital (RAROC), or perhaps a middle-of-the-road failure mode and effects analysis (FMEA) model.
The model below describes Enterprise Risk Management
ERM uncovers risks in order to build organizational resiliency and sustainability. Organizational resiliency, or an enterprise’s ability to recover quickly from setbacks, is particularly important when risk is unavoidable or non-transferable.
Do we understand the root causes of the risk event? Is the risk acceptable within our risk tolerance? Do we have the appetite to take on more risk? If not, how can we prevent, mitigate or exploit the risk event (or its likely consequences)? What controls are in place to manage the risk?
Conclude
You should not be running a business or a high-value project unless you have Enterprise Risk Management as part of your Management System
As an individual in the business world, embracing change is vital for several reasons:
Career Growth: The skills and knowledge that made you successful in your job yesterday might not be enough for tomorrow. Continuous learning and adapting to new skills, technologies, and methodologies are crucial for career progression and maintaining your employability.
Technological Fluency: Technology is becoming a fundamental aspect of most roles, and technical fluency is increasingly crucial. Embracing changes in technology can ensure you can keep pace with the demands of your role and stay ahead of the curve.
Networking: The business world is ever-evolving, and so are the people within it. Embracing change allows you to network effectively with diverse groups of people, creating more opportunities for collaboration and advancement.
Market Understanding: Market dynamics change rapidly due to factors like new entrants, regulatory changes, and shifting consumer trends. Staying updated with these changes helps you make informed decisions and propose innovative strategies.
Innovation: Those who embrace change are often the ones who bring innovative ideas and solutions to the table. Innovation helps you stand out and increases your value to your organization.
Resilience: Change is often associated with uncertainty and challenges. Embracing change builds resilience, which is a valuable skill in navigating the business landscape.
Leadership: Leaders must not only adapt to change themselves but also inspire and guide their teams through change. This requires a willingness to embrace change and the ability to manage it effectively.
Personal Development: Embracing change often involves stepping out of your comfort zone, which can lead to personal growth. You might discover new interests, strengths, and pathways for your career.
In a rapidly evolving business environment, those who resist change can quickly become obsolete. Embracing change not only enhances your relevance and value in your current role but also opens up new opportunities for career growth and personal development.
Bankruptcy is a difficult and complex process that can be devastating for a business. It can happen for many reasons, including poor management, economic downturns, and unexpected disasters. However, it is not the end of the road for a business. Recovery from bankruptcy is possible, and it requires a combination of careful planning, determination, and hard work.
Understanding Bankruptcy
The first step in recovering from bankruptcy is to understand the process and its implications. Bankruptcy is a legal process that involves the court taking control of a business’s assets and liabilities. It is intended to provide relief for a business that is unable to pay its debts. However, bankruptcy can have serious consequences, including loss of assets, damage to credit scores, and limitations on future borrowing.
In order to recover from bankruptcy, it is essential to understand the reasons why the business failed. This will involve a careful analysis of the business’s financial statements, including its income statement, balance sheet, and cash flow statement. It is also important to consider external factors, such as changes in the economy, competition, and regulatory environment. Once the reasons for the bankruptcy have been identified, a plan can be developed to address these issues and prevent them from recurring in the future.
The next step in recovering from bankruptcy is to develop a comprehensive recovery plan. This plan should be based on a detailed analysis of the business’s financial situation, as well as an assessment of the external factors that contributed to the bankruptcy. The recovery plan should include specific goals and objectives, as well as a detailed action plan for achieving them.
The recovery plan should address a range of issues, including financial management, marketing, operations, and human resources. It should also consider the needs of stakeholders, including creditors, investors, and employees. The recovery plan should be realistic and achievable, with specific targets and timelines for achieving each objective.
One of the key areas that needs to be addressed in the recovery plan is financial management. This involves developing a sound financial strategy that will enable the business to manage its cash flow, reduce costs, and increase profitability. The recovery plan should include a detailed analysis of the business’s financial situation, including its cash flow, balance sheet, and income statement.
The financial strategy should include a plan for managing debt and reducing expenses. This may involve renegotiating debt with creditors, reducing overhead costs, and improving inventory management. The recovery plan should also include a plan for generating revenue, such as expanding into new markets or developing new products and services.
Marketing
Marketing is another critical area that needs to be addressed in the recovery plan. The recovery plan should include a detailed analysis of the business’s target market, competition, and marketing channels. It should also include a plan for developing a marketing strategy that will enable the business to reach its target market and increase sales.
The marketing strategy should include a plan for developing a brand image, creating marketing materials, and developing a social media presence. It should also include a plan for developing a sales strategy, such as developing sales channels and partnerships and establishing a sales team.
Operations
Operations is another critical area that needs to be addressed in the recovery plan. This involves developing a plan for managing the day-to-day operations of the business, including manufacturing, distribution, and customer service. The recovery plan should include a detailed analysis of the business’s operations, including its processes, systems, and personnel.
Blockchain technology offers a secure and transparent way to manage supply chains in businesses. By using blockchain, companies can monitor their supply chains in real-time, ensuring that all transactions are transparent and secure. This can lead to a more efficient and streamlined supply chain, reducing costs and increasing customer satisfaction.
One of the main benefits of using blockchain technology in supply chain management is the ability to create a tamper-proof ledger of all transactions. By using a decentralized network, transactions can be recorded and verified without the need for intermediaries, reducing the risk of fraud and errors.
This can provide a higher level of trust and transparency to all parties involved in the supply chain, including customers, suppliers, and regulators.
Blockchain can be used to track and monitor the movement of goods through the supply chain, from the point of origin to the final destination. This can help companies identify any bottlenecks or inefficiencies in their supply chain, allowing them to make improvements to streamline the process. By tracking the movement of goods in real time, companies can also reduce the risk of theft, loss, or damage to their products.
Another advantage of using blockchain technology in supply chain management is the ability to create smart contracts. These contracts can be used to automate many of the processes involved in the supply chain, such as payment and delivery schedules. This can help reduce administrative costs, speed up the delivery of products, and improve overall efficiency.
Finally, blockchain technology can be used to create a more sustainable supply chain. By tracking the movement of goods through the supply chain, companies can identify areas where they can reduce waste, energy consumption, and carbon emissions. This can help them achieve their sustainability goals and improve their reputation with customers and stakeholders.
Overall, blockchain technology offers many benefits for businesses looking to monitor their supply chain. By providing a secure and transparent way to track transactions, streamline processes, and improve sustainability, blockchain can help companies reduce costs, increase efficiency, and improve customer satisfaction.
Blockchain technology is revolutionizing the way project management is conducted. By leveraging distributed ledger technology, project managers can now ensure that their projects are managed more efficiently and securely.
Blockchain provides a secure, immutable, and transparent platform for project management. Since the data is stored in a distributed ledger, it is difficult to tamper with or alter the data. This provides project managers with an extra layer of security and trust in the data that they are managing.
Additionally, blockchain technology enables project managers to track the progress of their projects in real-time. This allows for more accurate project tracking and reporting, which can help project managers make better decisions.
Furthermore, blockchain technology can be used to create smart contracts, which can be used to automate certain project management tasks. Smart contracts can be used to automate the payment of contractors and other stakeholders, as well as to ensure that tasks are completed on time.
Finally, blockchain technology can be used to create a decentralized project management system. This system would allow project managers to collaborate with stakeholders from around the world, while still maintaining control over the project. This could help to reduce costs, as well as improve the quality of the project.
In conclusion, blockchain technology is revolutionizing the way project management is conducted. Through its secure, immutable, and transparent platform, project managers can now ensure that their projects are managed more efficiently and securely. Additionally, blockchain technology can be used to create smart contracts and decentralized project management systems, which can help to reduce costs and improve the quality of the project.
Turning a failing business around and back into profit is a task that requires the right skill but I have listed some of the key points that will get you on the right track.
Assess the current situation: It is important to take the time to assess the current situation of the business. Look at the financials, customer feedback, and other data points to understand where the business is at. This will give you a better idea of what needs to be done to turn the business around.
Identify the root cause: Once you have assessed the current situation, you need to identify the root cause of the business’s failure. This could be a lack of customer demand, poor management, or outdated products. Once you have identified the root cause, you can begin to develop a plan to address it.
Develop a plan: Create a plan to address the root cause of the business’s failure. This plan should include tactics to increase customer demand, improve management, or update products. It should also include a timeline for implementation and a budget for each step.
Implement the plan: Once the plan is developed, it is important to implement it quickly. This means making sure that the necessary resources are in place and that the plan is communicated to all stakeholders.
Monitor progress: As the plan is implemented, it is important to monitor progress and make adjustments as needed. This could include changing tactics or increasing the budget if necessary.
Evaluate the results: Once the plan has been implemented, it is important to evaluate the results. This could include measuring customer demand, looking at financials, and assessing customer feedback. If the plan has been successful, you can continue to implement it. If not, you can make adjustments and try again.
Stay agile: Finally, it is important to stay agile and open to change. As the business environment evolves, you may need to adjust your plan and tactics. It is important to stay on top of trends and adjust your plan as needed.
By following these steps, you can create a plan to turn around a failing business. It is important to assess the current situation, identify the root cause, develop a plan, implement the plan, monitor progress, evaluate the results, and stay agile. With the right plan and dedication, you can turn a failing business around.
You will notice, I have generalized key areas of focus but this is based on you having sufficient cash flow which gives you time to implement change, but drastic measures may also be required like downsizing the business and seeking funding in order to save the business.
I would always start with the balance sheet and the P&L for financial analysis then move to the plan of execution
