Although we are starting the year with market uncertainty and credit tightening because of the sub-prime mortgage crisis, the larger issue is business judgment. How good are the risk management and decision-making processes of organisations which cannot calculate or understand the risks of the transactions they enter? And how do you know if a key customer or supplier is affected? In this note I identify 3 of the risks you need to manage.

The flow-on effects of the US sub-prime mortgage crisis for the Australian stock market and financial system were unforeseen, it seems, because of ambiguous or misleading disclosure to the market.

So the first risk issue businesses need to consider is how good are your disclosure procedures and those of the businesses you deal with. If you are listed you need to review your continuous disclosure obligations. Even if your company is not listed, if you are a director or manager, are you satisfied you have identified key contracts and risks and understand them? Importantly, are you managing your liquidity risk? Have you reviewed your outsourcing arrangements?

The second risk is privacy and data security. Whether your data is electronically or physically stored, is it secure?

Could the UK Norwich Union Life fraud happen to you?

Do you have a data management and document retention system?

The third risk is errors from complex product packaging: whether you produce or sell consumer goods or financial products do you understand your products and market them accurately? The risk of misleading or deceptive advertising (no matter how innocent) or incorrect calculations or pricing is ongoing.

If you don’t have a risk management system in place how do you know whether these risks are  high or low risks for you?