Warren Buffett reminded us that “Risk comes from not knowing what you are doing” a message that is critically important at present as no one knows what’s going to happen next.

The risk profile of many businesses has shifted dramatically as they have been forced to adopt different operating strategies such as home delivery, employees working from home, and changed supply chain circumstances in order to survive.

In general terms managing risk falls into three distinct categories:-

1. Preventable risks.

In principal these are internal risks such as employee errors, unethical conduct, illegal and incorrect actions, and breakdown in routine operational procedures.

All businesses should manage these risks through active monitoring and prevention processes. There is literature and resource available to assist in setting up risk management processes.

2. Strategic risks.

These are risks that occur from adopting strategies that involve the acceptance of risk, for example, a bank assumes credit risk when it lends money. In the general sense the higher the anticipated return the higher the risk profile.

These risks can not be managed through the use of rules-based control models rather a system of risk mitigation that reduces the probability of any risk actually materialising should be adopted.

3. External risks.

These are risks that arise which are normally outside a businesses area of control. These can arise from political interference or decisions, natural disasters (such as the current pandemic), and significant macroeconomic shifts (Global Financial Crisis).

As a business can not prevent these risks from occurring managers should focus on early identification and mitigation strategies. In summary, we are currently experiencing a significant external risk event that has proven to be difficult to manage. In our case, our state government appears to have managed the risk more effectively than our counterparts in other states and territories.

Whilst life and business in WA have basically returned to normal this is not the case particularly in Victoria where risk management was poor, ineffectual, and inadequate.

This simply highlights the importance of early identification and the adoption of appropriate risk management strategies.

A good example of this type of strategy is Beach Energy where CEO Matt Kay adopts what he refers to as his rock-throwing exercise, where he gathers together his team and works out what it would take to break the business. In so doing they develop a sound strategy of risk management.

Many small to medium businesses either do not have a risk management strategy in place or have not adequately analysed the risks that can impact their business. It is incumbent on all managers to develop sound risk management procedures in order to survive.

The majority of employers have managed this situation very effectively without loss of productivity. The question then arises as to where do we go post-COVID-19? In reality, this question won’t be answered until a vaccine is developed.

Pre pandemic it was thought that the centralised office was critical to productivity, culture, and collaboration. The fact that in the corporate world these issues have not been negatively impacted is largely due to modern technology which has allowed for face-to-face meetings and collaboration will evolve. This will be a result of some employees who will prefer the office environment and some who prefer working from home.

A recent McKinsey and Company report found that 62% of employed Americans have worked from home during the crisis and 80% reported they enjoyed working from home as it allowed for more flexibility in balancing professional and personal lives. Also, many employees were happy at not being required to engage in long commutes every day.

Notably, Ahmed Fahour, CEO of Latitude Financial Services commented that during the lockdown in Victoria they were only using 3% of their office space as most employees were working from home with no loss in productivity. He also announced that they would not be renewing leases at their Sydney and Brisbane offices as those workers would be working from home permanently.

Certainly, in any of the professional services industries, we will see a structural shift wherein staff may attend the office on a set number of days, for example, two days one week and three the next. This will allow for a reduction in office space with the use of “Hot Desking” where employees will share work-spaces.

No doubt city landlords will also face a significant amount of renegotiation with their tenants and possible reduction in the office space required. We have started to see some evidence of this as noted above and also with Global Law Firm Ashurst CEO, Paul Jenkins expecting some 85% of his staff to be working from home. We suspect that this is just the tip of the iceberg.

In the event, there is no doubt that ultimately COVID-19 will see seismic shifts in how we work and interact with our colleagues and clients.

To do this she has recommended to the government that they should rewrite the supply chain rules so that almost all contractors are paid within 30 days. Whilst this is a big recommendation it makes total sense as businesses, no matter their size would have much needed additional working capital to employ more staff and invest.

If such a plan was adopted the government would need to more clearly define a small business as for example, not including the top 100 companies or defining a small business as one with less than 100 employees. Whatever the rules there would be problems at cut off however Carnell suggests everyone should be paid within 30 days.

Under this plan, the framework should be administered by an appropriately funded entity that is proactive with enforceable powers.

Obviously there would be significant resistance from large businesses who use such systems as reverse factoring to delay payments and or seek significant discounts for reasonable payments. Late payments by large entities account for 53 per cent of invoices meaning that $115bn worth of invoices are paid late stopping $7bn of working capital from flowing into small business every year.

The beauty of this plan or recommendation is that it requires no government outlays but merely the adoption of appropriate legislation and oversight by a duly authorised agency. Basically a no brainer!