presentation to accountants about networking with other professionals, specifically slanted towards accountants working with professional risk management advisers

1. The 3 key roles of the
Accountant in Business
Risk Management
The Accountant is the primary expert
relationship with the business owner.
The 3 key functions are:
1. Identifying the appropriate risk
management strategy
2. Quantifying the problems
3.Managing implementation of the
solution
Today we will quickly cover:
a.What is risk
b.How to measure it
c.Strategic choices
d.Quantifying impact
e.Managing solutions
Do all this = Good Parenting

2. Risk – The possibility of an adverse outcome

3. Measuring Risk & Choosing Strategy
Hi
Transfer Avoid
Frequency Low High
Retain Reduce
Low
Severity

4. Avoiding Risk
refuse to accept risk for a moment. Simply do not engage in it.
Example: Currency risk in exporting exclusively to USA.
Problem: it is a negative management technique. Essence of business
growth is calculated risk taking – so potentially growth-inhibiting.
Advantages: often low direct cost. Can be self-managed (appeals to DIY
clients). Eliminates entire element of risk, enabling focus on other areas.
A valid strategy if used on a considered basis, and selectively.

5. Retaining Risk
Often a default choice through ignorance – that is, no deliberate decision
has been made to either avoid, transfer or mitigate, so it becomes
retained. However, it can be a viable strategy for low frequency/low
severity events.
Example: over-reliance on few key staff managed by increased training
and development of internal procedures manuals (“turnkey” operations)
Problem: often unconscious choice, therefore the risk not considered.
Advantages: generally good way of managing risks of low severity but
relatively high frequency. If a considered approach however, can lead to
improved business performance (profitability & value) through application
of risk minimisation tactics together with built in pricing provisions for risk
adoption. Generally when a known risk is retained, it follows that
mitigation techniques are applied

6. Transferring Risk
Essentially it consists of passing the risk on to another party who is willing
to assume it. The key principle is that the client takes a known loss
(premium) that can be tolerated to remove the cost of the unknown loss
that cannot be retained
Example(s). Insurance policies, currency hedging, futures contracts
Problem: to pass the risk consequences off you incur a known loss.
Biggest problem is often knowing who to pass it to – seek specialists.
Advantages: loss is minimised and known, creating certainty. Bulk of
uncertainty transferred, freeing up business resources for growth &
development.

7. Mitigating Risk
Two methods of mitigation: reducing probability of event or minimising
impact/severity of event
Example(s): adoption of safety equipment and machinery guards to
reduce probability of event occuring. Or, installing sprinkler system to
minimise impact of fire.
Problem: betwixt & between – some retention, some avoidance, some
transferrence means can be more difficult and costly to implement
appropriate strategies. Tends to take some time to implement also.
Advantages: often relatively cost effective overall; can enhance business
efficiency and value; can improve ongoing costs; can improve employee
relations

8. Quantifying the problem

9. Quantifying the problems
Recap:
A. Probability of occurrence
B. severity of outcome
Accountants-only functions:
Valuation methodology – what is appropriate. Or what range of methods?
Identifying vital components of value creation. Attributing value to those.
Assessing optimal strategy – Retain? Avoid? Transfer?
Providing professional recommendation to client
Managing other specialists during implementation. (Project manager)

10. Already too much to do?

11. Managing the Solution

12. Overview of risks to consider
Some general types of risks worth transferring:
property;
liability;
personal impact (life, health, disability);
negligence & omission
Some not worth transferring, but worth Reducing (mitigating impact of) or
Retaining:
Business succession;
Capital/cashflow strain;
OSH & ACC
Growth/control issues (e.g. operational procedures, HR, leverage, etc)

13. Show the road ahead...

14. For more information or to contact
www.strictlybiz.co.nz
TonyVidler