Managing risk is a key imperative for businesses in order to succeed and remain sustainable in today’s volatile and competitive economic environment, warns Charlene de Beer, Associate Director and head of Risk Services in Africa for global construction and management consultants, Turner & Townsend.
“The continued uncertain economic times of the past few years have had a major effect on how businesses currently operate. Companies that used to operate smoothly with the help of forecasts and projections now refrain from making business judgements that are set in stone. Now, they have a renewed focus – to manage risk,” says de Beer.
Charlene de Beer, Turner & Townsend.
Risk is also one of the main causes of uncertainty in business today and “as a consequence the need for companies to focus on identifying risks, understanding and managing them before they impact the business is increasingly important.
“The ability to recognise and manage risk enables leaders to act more decisively regarding critical business decisions,” says de Beer. “Knowledge of the true level of risk one faces provide gateways to more options on how to deal with potential problems. This is where Turner & Townsend can add significant value and has done recently for Afrox.”
Afrox is Sub-Saharan Africa’s leading supplier of industrial, special and medical gases, and welding equipment. In 2017, it celebrates 90 years in business operating in more than 13 African countries. “Risk and the management of risk is no stranger to us,” confirms Afrox Managing Director, Schalk Venter.
“Afrox has successfully managed risk as part of good business and governance for decades in an environment that is beset with constant ups and downs, be it on the economic or political front,” says Venter. “In 2015/2016, Afrox successfully underwent a total restructure to align operating costs with the economic realities of a low growth South Africa.
“Executive management decided a natural and prudent progression of growing our business in 2017 and beyond would be to engage a fresh set of eyes, with new and innovative ideas around the very real risks our industry and markets face today.”
Says de Beer: “An important component of the services we are providing to Afrox is technical methodology and general risk principle training for embedding risk management into the culture of their new model business.”
Afrox’s customer portfolio is a litmus of South Africa’s business and economic health. The company supplies heavy and light industry, steel producers, mining, fabrication, construction, automotive, agriculture, healthcare and hospitality, to name a few.
“Townsend & Turner has brought the fresh perspective we were looking for,” confirms Venter. “Across the board our business’s fit-for-purpose and shareholder expectations as to our ongoing performance is at its highest for nearly a decade.”
Today, businesses face numerous and constantly changing risks, not the least of which is a weak global economy. Other factors include regulatory risk, increasing competition, potential reputational damage, failure to attract top talent or to innovate, business interruption, commodity and price risk, cash flow and liquidity risks and also political risk.
“While external risks are not in management’s direct control, the ability to understand them, mitigate and react quickly very much is,” says de Beer. “Risk management has never been more important than it is today.
“Without it a business cannot possibly define its objectives for the future with any certainty and if a company sets objectives without taking the risks into consideration, chances are its leadership will lose direction and control once any of these risks hit home.”
Turner & Townsend utilise advanced techniques such as the Monte Carlo simulation, which is a technique used to understand the impact of risk and uncertainty in financial, project management, cost and other forecasting models.
Says de Beer: “This simulation enables one to examine many possible outcomes, and how likely they are to occur. It mathematically and objectively computes and tracks many different possible future scenarios, revealing the probabilities and risk associated with each different one. This means leaders can assess which risks to take or to avoid, allowing for the best decision-making under uncertainty.”
Turner & Townsend’s core business focuses on managing projects and programmes. In the current environment risk often comes in the form of poorly conceived concepts, untested business cases and underperforming projects through a lack of appropriate risk process.
“These types of challenges leave investors cautious about future programmes on the African continent, but that doesn’t have to be the case,” says de Beer. “Investors and businesses alike must address and plan for country-specific challenges and our expertise is in helping facilitate this – it really is the only way to approach opportunities in Africa successfully.”