Building blocks of company risks: can you appraise them?

Sectoral and company risks tend to stay balanced as the world and country economy navigates in a balanced manner. But it causes a breakthrough in the company risks as the balance gets disordered. Micro, small and medium enterprises (MSME) owner or managers are expected to examine the company risks during such periods as the world is experiencing in recent years. Normally company risks are transposed into financial risks after some time (on the short or long term) and route to financial risks in MSMEs goes through strategies and management structure of the company. An analytic approach such as “cause and result” relationship may be used to examine the risks of the company by resolving the relationship between strategies, management structure and company risks. The inductive methodology may be a practical solution to the analytic approach which means starting from the micro level constituents to the main problem.

Risks in an MSME are examined in micro level before combining them to get the total risk level of the company in the inductive methodology. Market, customer and owner/manager infrastructure are mainly evaluated in this risk evaluation approach. MSME Company Risk Evaluation Table which expresses the methodological approach given in this article, is provided at the end of the article. The table is designed in a methodology comprising of building blocks of company risks. The building blocks of the company risks included in the table are given below:

  • Sector
    • Open to development?: The overall state of affairs of the sector in which the company is running, affects the long term performance of the companies in it.
  • Market
    • Market diversification: Market diversification is an important element for having a sound risk management base for companies.
    • Size: Size and the competition level of the market transforms into company risks interactively.
  • Customer
    • Number: Customer based risks are the main building blocks of company risks. In that respect increasing the number of customers paves the road for decreasing the risks.
    • Diversification: Number of customers is not the only risk mitigation factor but also, size of the clients and sector diversification.
    • Who has the power? While working with strong clients is, in general, a means of lowering the company risks, it results in power transmitted to the client. It is important to reach out to an optimization level on client-company power balance.
  • Distribution channel
    • Proficiency and utilization level: Distribution channel diversity and particularly the use of digital channels are among the important risk minimization factors. Effective use of the distribution channels is another important factor, too.
  • Product/service
    • Diversification: It is the power of any business the product/service diversification which comprises the sales. Distributed product/service base within the turnover and profit of the company has a lowering effect on business risks.
    • Product/service competition: Possessing products/services which strengthen the company’s position on competition is another factor for lowering the risks. Getting possession of high value added or rare products/services detract companies from competition.
  • Competition
    • Strong competitors: How big or small the competitors or their market domination are among the risk factors for companies.
  • Human resources
    • Managers: Owner or managers of the company also have effects on increasing or decreasing the risks.
    • Staff: Number or qualification of the staff is an important factor particularly during the growth periods for MSMEs.

Above given risk factors are taken into consideration specifically from the perspective of Micro, Small and medium Sized Enterprises (MSMEs). Even though the scoring system given in the below table is proposed to sum up of singular points of factors to determine the total company risk score, there is an interlaced propagating effect for increasing the total risks. i.e., when two middle level risk factors are combined for a company, it is probable to end up to a high-risk level for the company. The table is provided as a guideline for MSME owners/managers to run a risk evaluation study for their companies. Then, it is required to propose a road map for lowering the company risks for the short, medium and long-term.

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