Risk management and strategic planning crucial for SMEs

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Bikky Khosla | 10 Feb, 2009
The importance of strategic planning and risk management, at a time when small and medium enterprises (SMEs) are prone to volatile market forces and have limited finance back up, cannot be emphasised more than at present.

Without doubt, risk management will only enable any company to identify the threats and challenges ahead and help it in facing it in a more capable manner.

Calculated risks are part and parcel of any business but if a business has to grow at the rate it wants to then it is very important that it grow through self development and self evolvement rather than depending on favours from the government which usually never reach them anyway. However much one tries, it is a fact that financial risk, market risk, operational risk, strategic risk, environmental risk, etc. are impossible for SMEs to avoid.

One of the reasons I find for SMEs having to take certain risks is financing which is absolutely vital for them as most of them depend on financing to grow. As such it becomes very essential for them to have a strategic planning and risk management program in place.

I feel what SMEs need to have is a strategy to minimize risks by monitoring the exposure of their businesses so as to ensure that they do not derail one's business operations.

I strongly believe that to minimize risks in business operations SMEs need to first identify and rank business risks internally by the management through self assessment exercise.

Once they are identified they should go for the most appropriate strategy to avoid these risks and implement controls to manage other potential risks. Learning from experience and making continual improvements is very essential for small businesses. If one is making the same mistake again and again, then it becomes imperative to evaluate where it went wrong before going any further.

Having said that the government too has a wider role to play in helping SMEs in corporate governance, business ethics and risk management.

Authorities need to understand that SMEs have lower risk thresholds and are more vulnerable to surprises. Thus governance practices like effective risk and crisis management and good safety policies are crucial in this context.

Today Indian SMEs are burdened with governance requirements applied to large, listed corporates. A smartly crafted and voluntary governance framework that is light but focused for the cause of SMEs is the need of the hour.

For instance, exporters usually face certain risks that are totally different from those encountered domestically. Political risk, legal risk, credit related risk, Internet frauds, quarantine compliance are some of the risks that SME exporters cannot handle themselves. So a proactive participation of the authorities is very essential.

Sadly enough, I see no authority attempting to cross these hurdles. And when the helping hand of the government is nowhere to be seen, it is best that we try to manage and minimize the risks by preparing a simple risk management plan.