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January 19, 2019

Company out to show why risk management plans are pivotal

NOT FORESEEN: One of the vehicles burnt beyond recognition by suspected Al-Shabaab terrorists at Kibaoni in Mpeketoni, Kenya's Coast, on Sunday night. Photo/ ALPHONCE GARI
NOT FORESEEN: One of the vehicles burnt beyond recognition by suspected Al-Shabaab terrorists at Kibaoni in Mpeketoni, Kenya's Coast, on Sunday night. Photo/ ALPHONCE GARI

Even a correct decision is wrong when made too late, so the saying goes. This couldn't be more apt at a time Kenya is going through a tumultuous period under the siege of terrorism.

The recent attacks in Mpeketoni at the Coast, which have cost lives and business losses, is a sore reminder that risk management should be core in business just as insurance is. It was the same experience for businesses caught up in the South Sudan turmoil.

The success of any business plan depends on timely assessment of risks that could curtail the effectiveness of its strategies.

According to a Nairobi-based regional risk consultancy firm, Liaison Group – which helps businesses assess, manage and identify potential risks they may be exposed to – many firms miss out on the opportunity to make the right decisions that have far-reaching impact on sustainability of operations or on their success, owing to lack of risk management strategies.

 "Businesses are exposed to risks such as cash management, financing costs of operations and the current major ones which are political and security risks," says Liaison's managing director Tom Mulwa.

 Risk management is defined as the identification, analysis and prioritisation of uncertainties in the business environment.

 Though many firms consider insurance covers as protection against potential setbacks, this alone is not adequate guarantee. Planning ahead always makes it much easier to cope with occurrences, Mulwa says.

Liaison – which also operates in Uganda, Tanzania, Rwanda, South Sudan and South Africa and is affiliated to the Lloyds of London – has partnered with KEPSA (Kenya Private Sector Alliance) to help inculcate risk management as part of companies' business strategies. This will enable firms to wade through myriad storms that are often unseen.

 The Federation of Kenya Employers, an lobby group, has raised alarm over heightened politicking and insecurity in the country and says that many jobs have been lost as businesses close due a deteriorating business environment.

"Effective assessment and management of risks will reduce volatility and increase both profitability and shareholder value," Mulwa says.

 While the current insecurity problems in the country may be a temporary setback, Mulwa notes, the government's reaction to these risks will determine whether businesses fail or succeed.

 "The government needs to assure investors that everything is under control," he says.

 "For our local businesses unfortunately, there is nowhere to run to. Multinationals have a choice to relocate to more secure and politically stable markets."

The impact of different risks varies from business to business, but small and medium enterprises are hard hit when cash-related or political risks occur.

 However, "whatever the size, nature or location of your business, it will face operational, strategic and regulatory risks", according to Mulwa, an MBA holder and associate at Risk and Insurance Management Society Inc.

"When properly designed, a risk management programme allows an organisation to actually take in additional risk while growing more securely," he explains.

 Risk advisory services, he notes, are growing more important to businesses because they can help identify and address business risks, benchmark a firm's performance against its peers and provide best practice advice to help entrepreneurs develop a risk management culture.

 Mulwa says risk advisory services are yet to be fully embraced in the country, but more companies are beginning to appreciate risk management.

"If you do so (solve risks unknowingly), it is like you are driving blindly, such that there is no way to measure whether you are managing your risks effectively. Businesses need to study their risks to know how best to deal with them because not everybody manages them properly," he says.

Disappearance of Malaysian Airline's flight MH370 and the handling of the information by the company and the Malaysian government in the aftermath had major negative repercussions on trade between Malaysia and China.

 Risk managers feel the Malaysian government did not handle the unfortunate incident properly, leading to negative sentiments.

Mulwa, whose firm also runs an insurance brokerage arm, says this is one of the cases that demonstrate why insurance alone does not cover risk fully.

 Many corporations in developed markets have embraced risk management especially after the global financial crisis of 2008. In business circles, "risk is like fire, if controlled it will help you, if uncontrolled it will rise up and destroy you".

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