With less than one months’ notice Air New Zealand announced it will suspend its Kapiti-Auckland service. The daily flights that link our largest city with a region that is growing steadily on the back of other major infrastructure projects (namely the Kapiti expressway and the transmission gulley project) came as a surprise to many.

The direct impact of this decision on most businesses in the region is relatively small. If business owners and their staff were using the service regularly, they now face the less convenient options of travelling to Wellington or Palmerston North to access a flight.

Some businesses, however, face a heavier impact. Those that have established a service or priced a contract on the back of the Kapiti-Auckland service now face having to remove or reprice that service, absorb a loss or renegotiate the contract. Businesses impacted most are those directly reliant on the airline operating in the region e.g. those servicing the flight, or providing a service direct to the passengers or the crew. For some of these businesses the airlines decision will either have a significant impact on their profitability or may even force them to close.

It’s a timely moment to consider how your business is placed should you need to recover from a major change in the environment in which you operate.

What do you need to be doing to manage your external business risk?

External risks are those risks beyond the organisation’s control: these risks can be unpredictable, as they originate outside of the organisation and typically have a low rate of occurrence. These factors make it hard reduce the associated risks.

External risks include, economic factors such as changes in market conditions or an overall economic downturn; natural risk factors such as flooding or earthquakes that can damage merchandise, plant or cause a decline in overall sales for a period of time; and political risk factors such as changes in taxes, tariff or regulation.

So, what do we need to be doing to manage the external risk?

1. Identify: know what risks are present. Conduct regular environment scans; build knowledge about the market in which you operate and know how changes in that market could affect your business.
2. Assess: know the likelihood and impact of that risk occurring. How likely is each risk you’ve identified to actually happen? And, if it does happen how much will it impact our organisation? If it’s highly likely to happen and likely to have a significant impact then you need to prioritise the management of that risk.
3. Respond: build business resilience to mitigate these risks in the event they occur. What measures do you have in place to remove or reduce the impact of that event occurring? Is your business model strong enough to bounce back from the impact or is your business model agile enough to shift to another part of the market and recover? Have you got sufficient capital reserves to act as a buffer to minimise the impact of this risk?

Being aware of the types of risks faced by your organisation, and how to best manage those risks, is a crucial part of running a successful business.

“Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning”
– Charles Tremper

While the nature of risks is such that they can often be unpredictable in terms of when they will occur, having a risk management plan on how to handle risks when they do arise, can mean the difference between your business folding, surviving or thriving.

We regularly work with businesses who are facing unprecedented change and managing to thrive- not just survive. Taking a realistic but optimistic approach to your risk mitigation and planning practices can be hard when the world around you is changing. Taking the time to get impartial advice from a trusted advisor can help you gain perspective and see the woods through the trees.