Managing Uncertainty in Food Production
Running your food business requires all your attention. Even after giving it your all, you and many food producers still lose sleep at night over the risks you face, such as freshness of ingredients, equipment management and workforce interruptions.
There are many other ‘acts of God’ and man which may disrupt and sometimes destroy an otherwise profitable business. These can be workplace accidents, legal exposure, and human resources issues involving current or past employees. Protection against such risks are now a given for organizations that seek to survive in the long-term. There are many insurance policies available to cover business interruption due to supply-chain risk, equipment breakdown, spoilage and contamination, food safety and recall, cyber liabilities such as hacking, internet outages and much more. But how much insurance can a growing organization afford to buy? Is there a better way?
Fortunately, there is.
Limitations of Insurance
Insurance can only make you and your company whole again after sustaining a serious loss. Effective management of uncertainty can prevent any of the above risks common in food production. Because this is true, organizations which demonstrate a systematic, transparent and credible manner for managing risk can reduce their insurance premiums dramatically.
Prevention consequences which may harm your business is a greater path to success than buying insurance. Learning effective risk management also helps you achieve the very welcome fringe benefit of identifying and accelerating positive consequences, helping grow your business.
Managing risk or managing uncertainty – which is it?
Until the 70’s, risk management simply meant buying insurance. A risk manager was the guy or gal who decided which kind of insurance to buy and how much of it the company needed. There are still thousands employed today who do little more than buy insurance to satisfy this job title and description.
Since then, industry after industry have experienced catastrophically damaging events, such as food poisoning, oil spills, market crashes and more. This was a catalyst in many industries to focus more effort and resources on prevention than on cleanup.
Prevention is achieved when decision-making explicitly considers uncertainty.
As successful business owners, we like to believe that we are excellent decision makers. This is certainly true – it is exactly what got our business to the position it holds today. Even the best decision-makers face uncertainties which make decisions more challenging. Sometimes, in the heat of our most urgent decisions, some of us make emotional decisions which, with luck and years of field-earned intuition, may still work out in our favor. When groups are called upon to make decision, they sometimes succumb to ‘group think’, resulting in many yays or nays lacking factual support.
While we are accustomed to Webster’s definition for risk, i.e. the possibility of loss or injury, many industries have come to recognize that a far broader meaning for ‘risk’ will benefit organizations of any size and sector. The modern definition for risk, in plain English is: the effects which uncertainty may have on my goals, whether positive and negative. Today, risk management means making decisions, in consideration of all uncertainties, with the aim to maximize positive outcomes and minimize negative consequences.
Because formal risk management aims to maximize positive outcomes and minimize negative ones, your staff learns to consider goals and objectives more often – in fact, every time an important decision is taken. Training your employees to focus on company goals and objectives for risk management increases productivity many times over. This is a much greater achievement than the benefits of decreased insurance premiums and more powerful than the effective mitigation of loss and injury.
We already do risk assessments!
That’s great to hear. By doing this, you are mitigating many potential hazards from occuring in your facility. In fact, risk assessment is an important part of the decision-making process known as ISO 31000, the international risk management standard and you are well along the path to success. When you add the entire framework for managing uncertainty, you accrue the valuable benefits described above, including maximization of opportunities.
Is this expensive?
If you are determined to focus your workforce on company goals and objectives, increase productivity, mitigate losses and hazards and maximize opportunities, you will discover that all costs will quickly be recaptured by the benefits of better decisions and reduced insurance premiums.
Taking the time to train your workforce on systematic management of uncertainty can dramatically increase the probability of your long-term business success. Check with your insurance agent to determine whether he or she can wrangle significant premium reductions in exchange for a transparent and documented risk management discipline embedded within your existing organizational processes. Tell them that you are referring to the international risk management standard, ISO 31000.
Then pick up your phone and contact me to learn how managing uncertainty can produce your next profitability spike, as you watch your organization grow.