Market uncertainty brings risks, but for the well prepared it can open up opportunities, says Stephen Harvey.
For many managers, the increasingly volatile and uncertain business climate is uncharted territory. Plotting a safe course through an economic downturn is not something most people get to practise, so it's important to plan ahead.
Seize The Day
This is not just about minimising the impact of a downturn, but appreciating that tougher times also offer an opportunity to improve your competitive position. To take advantage of these opportunities, businesses need to take a long-term view and make some bold decisions.
The prudent executive will recognise that analysing the strategic risks and opportunities facing the business is now more important than ever. In the current climate, business plans and financial forecasts take on added significance. They should not only be used to measure performance, but play a key role in deciding what actions to take and when.
Plan Ahead
A systematic approach to risk management and scenario planning will help get the best from your business plan. This can be broken down into five main components.
- Identify a number of different scenarios for business
performance during the year ahead - from worst case to
optimistic.
- Create some key milestones to benchmark your actual
results against these alternative scenarios - and analyse the
impact on cash flow.
- Understand the business risks that may prevent you from
reaching those milestones, such as loss of key
suppliers.
- Determine the actions you will take if those milestones
are not met, and have alternative plans ready for immediate
action if required.
- Introduce additional key performance indicators and
reports that will provide management with early warning
signals.
Inspire Confidence
It's easy to forget that in a downturn, the way you and your company behave is under constant scrutiny - from shareholders, banks, suppliers and customers. Furthermore, your employees will be looking to senior management to demonstrate clear leadership and give them confidence about the future of the business.
One way of exhibiting this confidence is to properly document and clearly communicate appropriate elements of your business plan. This enables senior management to demonstrate that they have well thought through plans in place and are ready to react, whatever the trading circumstances.
There are two good reasons for this approach to risk management. Firstly, those involved in the planning process will feel far more positive and confident in their ability to weather the storm. Secondly, there is far less risk of being caught off guard - and there's always the chance that your competitors will not be as prepared.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
