How do SMEs find the right balance when it comes to risk management?

Are you on top of risk management?

Starting and running an SME takes a special kind of person. One prepared to go outside their comfort zone, invest their life savings, start from scratch, do things differently… Someone prepared to take risks, in short.

In some ways, therefore, ‘risk management’ seems at odds with entrepreneurialism. With associations of cautious, process-heavy big business, risk management sounds like the kind of world many SMEs are created explicitly to avoid, preferring instead the nimble and adventurous.

In fact, it ought to be the complete opposite. Because SMEs are such a significant part of the UAE economy, they face just the same risks as large corporations, and a responsible risk management culture is just as important. The only real difference, in fact, is the scale and severity of any impact on the balance sheet.

Despite this, many SME owners and managers pay little attention to risk management, and don’t consider the positive role that it can play in their enterprise’s survival, growth and prosperity. (A 2009 survey, which is the most up-to-date analysis specific to this issue and region, found that 70% of GCC businesses had no risk contingency plans at all).

For example, a demonstrably robust approach to risk management can be used to counter the perception from banks and other investors that you are ‘high risk’, often simply because you are an SME. In that sense, it can help to open doors to funding that might otherwise remain unobtainable – a key challenge faced by many SMEs in this region. Sound risk management can also help to reassure customers, suppliers and partners as to the long-term viability of doing business with you.

What is risk?
Risk is the possibility of something happening that affects your business. Effectively managing risk means not only avoiding any consequential losses, but also maximizing potential opportunities. It means anticipating risks, both good and bad, to create and sustain your business value.

What can you do about it?
For many SMEs, having a dedicated risk management function in-house can be a step too far; the costs of such an overhead are hard to justify. Instead, risk management tends to focus more on insurance – in effect, protection against risk. While this can often be sufficient for an SME, that’s only if the policy is a good one. Cutting corners to save costs can be counter-productive, and rather than ‘looking for the cheapest policy’, you should think in terms of value creation.

A qualified insurance broker or agent can help here, but you need to be sure they understand your business. For that reason it can be worth the cost of commissioning an internal risk audit as part of engaging one. This will also help to give you the confidence that you won’t end up over-insured, with the wrong limits or saddled with unhelpful exclusions. It can also you to spot areas where you can save time, improve safety, reduce costs and protect company value – widening the benefits that risk management can bring.

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