Small is . . . Different

by Rosie Harrison


Are you the one with the big sign?  You know the one I mean, it says ‘The buck stops here’.  Or does the buck just drop in on you because you provide the reassurance or information? With the growth in public accountability of senior managers perhaps it’s time to take a closer look at this buck and where it can come from. 

Unless you work for one of the few big companies that is self-sufficient your business will depend on the goods and services produced by other firms. What kind of companies are they? How big are they?  

You rely on these other businesses to provide you with the resources and expertise you need to enable you to thrive and excel in your business. When you look at your own business risks their ability to manage their risks may affect your contingency plans and the level of assurance you can give. The better they manage their risks the less chance there is of a herd of bucks rushing headlong to arrive at your desk. 

So what does size have to do with it?  Everything! Including the level of confidence that you can place in any risk assessment information supplied to you. 

Introducing SMEs

The name says it all - Small to Medium Enterprises - You could be forgiven for thinking that this has nothing to do with you. But are you sure? 

SMEs may be small but there are a lot of them!  3.7 million in the UK alone.  

Would it surprise you to know that SMEs are the faster growing sector of most economies in the world?  And that in the UK they:

        ►   account for 44.7% of business turnover

         ►   make up the 96.5% of companies employing ten or less staff

         ►   employ 12 million people out of a total workforce of 21.7 million - three times as many people as are employed by the FTSE

                  500  companies

         ►   produce 40% of the GDP 

Somewhere along the line you are probably working with an SME. 

This can be excellent news. According to the CBI, SMEs are hot and sexy, frequently on the cutting edge of technology and able to react quickly to market trends and new opportunities. So what is life like in an SME? 

Management in SMEs tends to be concentrated in a small ‘team’, sometimes an individual manager – 1.1 million UK SMEs do not have any employees. The ‘team’ does everything: running the business; marketing; financing; compliance; troubleshooting; hiring and firing and every other thing that needs to be done. 

For many, perhaps even most, SMEs tasks like long term planning and risk management take a back seat in the day to day business needs and the copious amount of government regulation. They can even get squeezed out altogether. 

In spite of this time pressure, changing regulations, global markets, higher customer expectations and the pace of technological innovations mean that the SME sector now requires greater management expertise than ever before. Failure to properly address risks can be devastating and rapid for unprepared small companies. From all that you might expect that their required skill set would include good risk management practices - so how are they doing?


Ready or Not?

Seemingly the majority of the SMEs, including those with over 50 employees, do not have formal risk mitigation plans and are lagging behind larger organisations in their efforts to develop formal procedures for identifying and mitigating high impact risks. 

The short answer is NO there is a good chance that your SMEs have not identified their high impact risks. Their failure to manage their risks could just very well end up in your lap. What would happen if your SME partner went out of business or in the case of single consultants and experts simply did not turn up?  Are you ready for that?  

There is no single source for SME statistics and those that do exist tend to be about 18 months old because of the difficulty of collecting and collating all the information. This makes it difficult to get a true picture – it could be a lot better or a lot worse – or just very different.  

One way of getting a better grasp of what is going on is to look at the SME special interest sites on the web, the government advisory services, national and regional business links, Chambers of Commerce and specialist business papers. 

You also find lots of help with venture capital, credit, financial, pension, and human resource risk. If you are looking for specific SME advice and information on strategic, business and operational risk – I wish you luck. All I could find was IT Risks in the form of BS7799, Data Protection and an article on Turnbull on the Irish Business Plus web site. 

The good news is that if we look at the Health and Safety arena we see a developmental process well along the learning curve with SMEs showing increasing levels of awareness and expertise in risk assessment and management, reflected in emerging good practice and effective risk management systems.  

On the face of it, it looks as though it could be years before business, strategic and operational risk form part of SMEs formal plans. 

What it does mean is that you cannot make any assumptions about the SMEs that you work with – you’ll just have to ask them what do they do? 


Catching up

On the assumption that your assiduous questioning of your SME partners causes them to do something - what is it likely to be? 

Yes, you’re right it’s a trick question. The answer is it’s anyone’s guess.  

What the figures do show is that most SMEs suffer from the dual constraints of budget and time. As a rule of thumb, the smaller the SME, the less time and money available for training. 

A recent study of Irish SMEs showed that almost half had no formal budget for management development and that training was mostly informal. If the Health and Safety experience can be used as a guide the most common way was ‘pick it up’ from books and articles or from someone they knew.  

SMEs can find it difficult to find the right kind of training – training that is accessible, affordable, relevant to their specific circumstances, and that can be tailored to the needs of people with very little time to spare.


A Helping Hand

Although it is tempting to regulate risk management the CBI warn that SMEs are in danger of floundering under the weight of compliance work they need to do for current government legislation. Any additional burden could well destroy the very innovation and flexibility that can make SMEs such a vital component of the economy. 

As an alternative it might be best to encourage a philosophy of self-regulation and goal setting in order to identify and manage high impact risks. It is essential that SMEs know of the business benefits of good risk management. On the bright side risk managers have fought that battle before so you know what to do to win. 

But remember Small is Different. SMEs are likely to have significant resource constraints, both financial and human. They are unlikely to be able to spend much time on any risk management process nor much time on follow up actions. 

So what can we/you do for SMEs.  

We can start on improving our relationship with our SMEs and we can:

·        ►   provide a case study and checklists specific to their circumstances

·        ►   provide communication and dissemination guidance

·        ►   provide electronic forms or a ‘lite’ record keeping program

·        ►   go visit them – spend an hour or two working with them

·        ►   offer training sessions or e-learning

·        ►   provide a mentor – or put them in touch with one

·        ►   sell the business benefits 

The two most important points to remember:

·        ►   make it easy, painless and fast

·        ►   KISS  - Keep it Seriously Simple 


Too Much Trouble?

And if you don’t have the resources or inclination to actively help what can you do about getting assurance that your SMEs are managing risk effectively or even adequately? How can you gauge the knock on effect? 

Just ask:

   ►   When was the last risk assessment carried out?

   ►   Who has responsibility for the assessment

    ►   What areas of risk are covered

    ►   What method is used to identify risks

    ►   How are they evaluated

    ►   How are risk reduction actions implemented

    ►   Who has responsibility for ensuring that actions are carried out?

    ►   Who needs to know about the risks and actions and who are they told?

    ►   How do you record all this information?

    ►   How often do you review your risks and risk processes? 

Now all you have to do is ask yourself 'Is it likely that my SME is keeping its bucks at bay?’  Or alternatively – ‘How lucky do I feel today?’


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Rosie Harrison is an ex Systems Analyst, Strategic Risk Manager and trainer, and corporate business manager.   Currently she is working as a life coach and business mentor. She also teaches Tai Chi.


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Some SME special interest websites


UK Government SME statistics and definitions

Of the entire business population of 3.7 million enterprises, only 25,000 were medium sized (50 to 249 employees) and less than 7,000 were large (250 or more employees).  

The Companies House definition of a Small or Medium sized Enterprise is that to be a small company, at least two of the following conditions must be met:

 ►   Annual turnover must be £2.8 million or less

  ►   The balance sheet total assets must be £1.4 million or less

  ►   The average number of employees must be 50 or less

  ►   To be a medium sized company, at least two of the following conditions must be met

  ►   Annual turnover must be £11.2 million or less

  ►   The balance sheet total assets must be £5.6 million or less

  ►   The average number of employees must be 250 or less

  ►   The EC definition has the same employee number thresholds, but higher financial thresholds:

  ►   Max. turnovers of €7m and €40m for Small and Medium companies

  ►   Max. balance sheet totals of €5m and €27m for Small and Medium

   ►   A maximum % owned by one, or several, enterprise(s) not satisfying the same criteria of 25% - for both Small and Medium companies.