Credit Matters Blog

There Are Always Ramifications - Are You Prepared To Pay The Cost?

Kim Radok 22 April 2015


Business is all about making the right decisions. Regretfully, being human, not all of our decisions will be correct. What is important is to not make too many wrong decisions, to make decisions based on the factors relevant at the time, and to learn from those decisions which ended up badly. Equally important of course, is to learn from others who have made bad decisions.

One area of business where the ramifications are most severe when the wrong decision is made is in the area of business risk. When we make a poor judgement call in the sales area for instance, our losses may be bad. However these losses will generally have been pre-paid and/or calculated to cover a specific sales situation. For instance, the budget for marketing has been allocated, distribution costs identified, the cost of salespeople and support, etc. These are planned costs which can be identified and anticipated. The proviso is of course, you have also properly allowed for any risk factors within your sales scenario.

Risk on the other hand, is a different kettle of fish. When we make a decision not to spend money on mitigating risk, the financial ramifications are usually larger than imagined and not within any budget guidelines. Worse still, there may be no funds to cover the risk incurred expenses. Typical risk associated expenses may include bad debt related costs, the costs associated with slow-paying customers, employee fraud, loss of reputation and then restoring that reputation, etc.

In today's business environment, there are factors which the average business professional and management teams are still in denial from a risk perspective. These factors include where (i) volatility is the new business norm, (ii) fraudsters are better educated in business than the average business person, (iii) legislative activism is supporting slow-payers and fraudsters whilst leaving honest creditors at a disadvantage and (iv) paying your accounts on time is not so important. The fact is; managing risk is far more important and complex than at any other time in our business history.

Furthermore, the stories in the media where organisations and business people have been caught out with negative ramifications of failing to account for risk in their decisions from yesteryear never seem to stop. What is disturbing is to "see" business people continuing today to make the same types of poor decisions as their peers made yesteryear. After all, these poor decisions and the resultant negative ramifications are readily available for all to see.

Risk is part of the business landscape. Businesspeople need to understand the possible negative ramifications which may result if they make decisions which make no allowance for risk. Until businesspeople start allowing for risk in their decisions, dollars, productive selling time and reputations, will continue to be lost needlessly.