Five proven rules to better manage risk in uncertain times
- Traditional signals are not enough to manage risk in unpredictable times. FinancialForce's Dan Brown explains how to be better prepared for what's ahead
Assessing and managing risk is all about trying to answer fundamental questions about your business, including where it is today and what awaits it tomorrow.
Companies have typically managed risk by monitoring internal and external signals. For instance, an outdoor recreation retailer like The North Face may use weather patterns to inform its sales forecast. Will there be a lot of snow on the West Coast? Is it an El Niño year? A La Niña?
But it's much harder to manage risk and build accurate forecasts when faced with an unpredictable event like the COVID-19 pandemic. This kind of event causes unforeseen changes to the business that even the best forecasts can't anticipate. Even the most conscientious companies can try to prepare for a black swan event, but they can never really know when or how it will impact their business.
In an environment like today's, in which every organization is dealing with major, discontinuous change, the traditional signals are not enough to effectively manage risk. With that in mind, here are five ways to more accurately track risk and gain a better understanding of your business — no matter the environment.
1. Add crowdsourced data to the mix
You want to be able to capture traditional signals that are sitting in your systems. But you also want to leverage unstructured, crowdsourced data, which for this type of risk can be a faster signal. For instance, you can instruct your salespeople to tag each time a customer or prospect mentions COVID-19 during a phone call or videoconference and then enter that data into your system. From there, you can start to see which industries and sub-industries are least affected or most affected by the pandemic, and then tailor your sales efforts accordingly.
We assumed early on in the crisis that clinical research organizations (CROs) would be an emerging opportunity. But our crowdsourced data actually revealed the opposite to be true. We quickly realized that many CROs were stalled because they couldn't get into hospitals to meet with doctors and pursue their research.
2. Make the right connections
When you see changes in the business, such as a shift in your sales patterns, you want to be certain why they are happening. Are the changes due to COVID, or are they a result of something else going on in the business? You can answer that question and get a better idea of your total risk exposure by maintaining a 360-degree view of your organization.
That's important because you can lose business for different reasons. If deals are being put on hold for the next six months because of COVID that's a very different signal than simply losing out to a competitor. You need to look at all your signals, structured and unstructured, to truly understand your business and make the right connection.
3. Look at risk in the aggregate
There are often early indicators that key accounts may be at greater risk than you anticipated, and it's surprisingly easy for account managers to miss these signals. Individuals within specific functional areas of the business often operate in silos, so they can fail to recognize the scale of the problem. That's why it's important for the organization to be able to look at risk in the aggregate. Risk management needs to be a cross-functional endeavor. So, when danger signs arise, multiple parties across the organization, whether it's the CEO, CFO, or head of product, can jump in and mitigate the risk as needed.
4. Get all hands on deck
Every company is seeing their resources and capacity shift. Now is the time to accurately determine where you have more slack in the system and where you are being stretched thin. It could be your organization has more slack in sales and service right now because deals and projects are slowing down. By contrast, the customer success organization may be working overtime because existing customers need more support than ever.
Companies that allocate resources to where they are needed most will be better able to manage risk. If you know a customer is not paying because of financial hardship, your finance department can work with them; if they are not paying because they are frustrated with your offers, your product people need to get involved.
5. Be proactive
As with any type of risk, you want to get out in front of it quickly. The longer you wait, the harder it is to mitigate the damage. Say, for example, you are seeing signs that customers may not pay their bill this month or may put their payment activity on hold. Even though some customers have not explicitly asked for restructured payments, you are getting a sense that they will. If you get in front of the risk, and address it quickly, you can put yourself in a position to restructure payment terms early on and thus prevent customers from defaulting. You can also better manage your cash flow to allow for that scenario, such as putting off large purchases that you were previously intending to make.
Predictive signals, even in a discontinuous risk like COVID-19, are indispensable. For instance, we use triggers and trending on active usage of our application joined with other signals, structured and unstructured, to inform the organization of where we might have a problem we wouldn't have otherwise seen.
We live in a riskier world than we did at the beginning of 2020. The red lights are flashing more persistently than ever before. The most successful companies are those that put systems and processes in place to help them quickly recognize the warning signs and navigate the best path forward. These five strategies will help you put these practices in place, taking advantage of the technology you have in place already, and the knowledge your employees gain every day as they interact with customers.