5 ways to manage risk in an accounting practice

by bruce w. marcus
professional services marketing 3.0

too often, we simply take risk for granted and go headlong into danger and chaos. it needn’t be so. even in view of the elements of risk over which we have no control, there are still measures of protection that can be taken to reduce a measure of risk in any enterprise.

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is there protection against risk? yes – to a larger degree than we may realize. there are at least five things you can do:

1. define. 

define the risk itself. understand precisely what the risk is. too often, we either ignore risk or look at it amorphously. sometimes, we simply take for granted that our skills and experience will be able to cope with whatever risk is involved. it’s like throwing out a football and then running out to catch it. sometimes it works, which gives license to continue to function in that mode. until, with our eyes skyward and on the ball, we fall into a ditch.

it’s worth the time it takes to consider the risk of any action in which a bad choice could be serious, and to assess the variables. in defining risk, you may find, as well, that much risk is multifaceted – the action you’re considering may have several elements with different degrees of risk. defining risk, and focusing systematically on it, frequently clarifies those factors that make risk more controllable.

2. assess the risk in terms of the objectives. 

you know what you want to achieve. are your chosen activities the best way to achieve those objectives? are the objectives worth the risk? what are the alternatives? here, the decision tree approach is useful. if we take path a, then this will happen. if we take path b then that will happen. which result can we better live with? when the consequences of an action are significant, this approach can mitigate risk, and allow us to make intelligent choices.

3. eliminate the variables.

by defining the risk, you are able to define all the variables that affect the outcome, and find those areas that can be eliminated. going to sea in foul weather for example, you can reduce a measure of the risk if you are sure that you have the skills in seamanship, and the safety equipment to diminish the danger, as well as the navigation and communication equipment to aid in quick rescue in case of mishap.

4. decide.

by taking each of the three previous actions, you have a better chance of understanding the nature of the risk of your enterprise, deciding whether you have the intellectual tools and experience to see you safely through the risk, and determining whether the prize is worth the risk.

5. anticipate and plan.

a crisis management plan – a what if… plan – is simple and inexpensive.

disaster is random, but the potential is always there. the risk of poor client service and losing a client exists in every practice. but most risk can be mitigated by professional client interviews. as the bay street group study informs us, there is frequently a chasm between how professionals think their clients perceive them and what the clients really think. a crisis plan may be as simple as designating a crisis spokesperson to speak for the firm with a predetermined script, or it can be an elaborate one that anticipates what if… nothing is more exciting than having the press call about a client in trouble, and having the call — and the press questions — answered by whoever in your office picks up the phone.

by following this path, you can build a crisis mechanism that includes a communications system to warn people. you can designate the hierarchy of responsibility, and be sure that responsibility for all measures of the risk is anticipated and covered. these measures are inherent in every corporate crisis plan. they should be inherent, as well, in every professional firm, as in every school and community plan.

at the heart of every crisis management plan is the recognition that crisis can happen, and that the likelihood of its happening in your business or community is not actuarial or otherwise statistical, but random, and that even a random disaster can be mitigated with simple preparation.

the danger in not meticulously defining the risk inherent in an action and considering the consequence of being wrong is to magnify the risk.