Managing Risk in Economic Downturns

Inflation, stagnation, recession, downturn—call it what you like, the US economy is officially stalled. A slowing economy can impact an organization’s risk profile in many ways. Here are just a few.

• Layoffs or fears of downsizing may increase injury claims. Some workers prior to layoff will claim a workers’ compensation injury to ensure they continue to receive a check for the foreseeable future. Overall, however, national research shows a decline in injuries during recessions because layoffs leave only the more experienced workers on payroll.

• Layoffs will trigger employment claims of disparate treatment.

• Layoffs will overtax employees and injuries, and allegations of stress may increase.

• Crime losses, both internal and external, may increase. Desperate times may trigger desperate measures.

• Organizations will cut back on safety, training and equipment purchases, which may put employees at greater risk.

• Believe it or not, risk managers and safety personnel often lose their jobs, especially in the public sector. This is why quantifying risk management cost savings is so critical to a risk manager's success.

• Business interruption values, according to Rick Betterley, President of Betterley Risk Consultants, go down, as do sales and payroll. This means return premiums from audits may increase.

• Receivables can quickly escalate, causing companies to lose their financial footing with little warning. Monitor your receivables closely.

• Supply chain management becomes even more critical, because heavily relied on vendors may reduce output suddenly , crippling delivery and production.

• Commercial loan funds may dry up. Ensure you stringently manage your cash flows.

• Your organization may become too focused on short-term financial goals, which can leave your company open to long-term problems. Your board of directors should be watching the big picture.

• Certain employees and departments will use the opportunity to power grab, according to Bob Sutton, a Stanford University business professor and author.

All these issues and other issues must be anticipated. Put a plan in place to manage them before they occur.

There may be some upsides to a recession, however. Take advantage of them to improve work processes and hone your organization.

• With a rash of layoffs, prime job candidates will be knocking at your door. Even if you have no immediate openings, develop a method to databank recruits and connect with these potential employees. You never know when you may be looking for exactly that candidate’s job skills.

• A leaner workforce may mean improved communication. Poor communication results in more corporate waste than experts will ever be able to quantify.

• This may be a perfect time to research your competitor’s best customers. If competitors fold or are compromised, you should be positioned to woo their accounts.

• Use this time to invest in research and development. Prioritize projects to ensure you target all your efforts for the greatest return on investment.

• Employees may not expect raises, but they will want recognition for their hard work. Recognition does not have to cost much. A simple award or commendation can work wonders when pay raises are non-existent.

• Consider telecommuting and flexible work schedules to reduce employee expenses and lower your own expenses. Closing your office or cutting back office staff one day a week can add significant energy savings and keep employees on the payroll without raises.

• In difficult times, use the numbers to teach employees basic accounting skills. Start basic and build financial acuity, which makes employees that much more valuable to your team.

Opinions on where the US economy is headed are all over the board, from the catastrophic to talk of a short recession. One thing is certain—slimmer profit margins requires tighter, more results-oriented financial flow. How you manage your workforce and your risk during these difficult times may mean the difference between your organization’s very survival and its failure.