Business risks to watch out for

How conversant are you with your business environment? Have you done a risk assessment to determine what pitfalls could be lurking in the dark for your enterprise this year?

Are you ready for any eventualities?

No matter how small you perceive your business to be, risk analysis on the possibilities of what could go wrong in your sector is key to the survival of your enterprise.

As many did not anticipate the 2020 Covid-19 pandemic that we could not avoid, anything can happen anywhere in the world and end up having a detrimental effect on your business.

An analysis by financial services firm Allianz Global Corporate & Specialty (AGCS) that was published by the World Economic Forum on January 25, 2022 lists cyber incidents as the biggest risks for businesses this year at 44 per cent. This is four per cent higher compared to the previous year.

Business interruption comes second with 42 per cent (one per cent higher), natural catastrophes 25 per cent (eight per cent higher) and pandemic outbreak at 22 per cent, a drop of 18 per cent.

Others are changes in legislation and regulation (19 per cent), climate change (17 per cent), fire or explosion (17 per cent) and market developments (15 per cent).

What should worry Kenyan firms

These risks were collected from a survey of 2,650 risk management experts in 89 countries between October and November 2021.

In Kenya, the top three risks are business interruptions, political risks and violence, and pandemic outbreaks.

“Political risks and violence is a new entry in the second position,” reads the report titled Allianz Risk Barometer 2022.

When it comes to business interruption – which is a leading risk in Kenya this year – cyber incidents were mentioned as the biggest fear.

“Despite the ongoing repercussions of Covid-19, the most feared cause of business interruption in this year’s survey is cyber, which ranked second to pandemic in this category in 2021,” says the report.

It explains that the growing concern reflects the rise in ransomware attacks, which can be used to derail businesses and their strategies, the digitalisation of business models and supply chains and the shift to remote working, which have accelerated during the pandemic.

“For most organisations, the biggest fear is not being able to produce and deliver their products or services,” says Philip Beblo, Property Industry Lead, Technology, Media and Telecoms at AGCS as quoted in the report.

“Whether it’s a cyber-attack, a flood or a fire affecting a critical business location or supplier, business interruption events can have a very costly and long-lasting impact that can extend well beyond an individual organisation,” Beblo adds.

Causes of business interruption

Cyber incidents led with 52 per cent when the experts were asked: “Which causes of business interruption does your company fear most?”

Natural catastrophes came second with 36 per cent followed by the pandemic outbreak (35 per cent), and major transportation and shipping disruptions (30 per cent).

“One of the clearest manifestations of business interruption during the Covid-19 pandemic has been the unprecedented levels of supply chain disruption experienced throughout 2021 and into 2022,” the AGCS report says.

“Companies have had to close or scale back production where they have been unable to secure critical components, or forgo sales as a result of capacity issues, such as constraints in container shipping or labour shortages.”

Sam Kibaara, a risk analyst, says enterprises need to invest in some level of risk assessment so that they can identify what the big risk for them is.

He gives an example of a fast food restaurant operating in town. The owner should assess the big risks of operating a restaurant which may, for example, include having sustainable suppliers.  Kibaara cites the KFC franchise case when the chain recently ran out of potatoes for its trademark fries.  

“They never managed the supplier’s risk. They needed to ask themselves ‘what if we have a logistical supply gap on these potatoes that are coming from outside. What will be our stop gap measure?’” he says. “And you saw what happened.”

The other risk for such a business is reputation. How you handle complaints from customers is key as they can make or break your business.  

Financial risk and cash flow disruption is also a risk factor that should be assessed. This is in addition to the quality of staff you have employed.

How is my liquidity position? Do I have at least two to three months of some cash that has been set aside for rent, power and such? These are some of the questions one should ask themselves when doing the assessment.

When it comes to the kind of staff one has employed, it narrows down to the investment made in them to equip them with skills and how valuable they are as an asset to the business.

“(You should ask yourself) Is there someone who looks like they may not be with me for so long? Then you assess all those risks and find out, how strong your business is,” says Kibaara. “The way I see it, if two of my employees leave, I will suffer.”

For example, if it is a restaurant, you might have key individuals who know the recipes and preparations for some of your sought-after meals, and you know if they leave, your business will be incapacitated for a while.

Shortage of workers

The Allianz Risk Barometer says that as economies reopen around the world after several months of lockdowns to curb the spread of Covid-19, reports of employers being unable to find the workers they need have become increasingly common.

“Covid-19 has been hugely disruptive to the labour market, exacerbating existing issues caused by older employees retiring and the already changing needs and expectations of potential employees, while bringing new challenges such as skilled workers who want flexibility over when and where they work, and who are prepared to leave existing jobs to achieve this,” the report says.

Laws and regulations, says Kibaara, are also a risk area as identified in the report. Noncompliance to any law or regulations could lead to your business being shut, hence losses.

“You can say: I need to be monitoring all these risks every month to find out if there is any licence we have not renewed, or if there is some compliance we haven’t done,” Kibaara says