Recognizing and managing risk

SHB student develops an enterprise risk management concept for a family business

Every business must balance opportunities and risks in its decision-making process. Modern markets are dynamic, fast-paced, and volatile, and this calls for a systematic approach to dealing with complex risks and supporting targeted business management strategies. As part of his MBA at Steinbeis University Berlin’s (SHB) School of Management and Technology, Markus Bussmann developed an enterprise risk management (ERM) concept especially for SMEs with family business structures.

The Bussmann family business has been in operation since 1898 and is in its third generation. The parent company, Hermann Bussmann GmbH, specializes in trucking and logistics, operates from its head office in Vreden, Westphalia, and serves customers all over the world. As a midsized joint-stock company, it is constantly growing. In 2012, Hermann Bussmann GmbH had 160 employees and a fleet of 90 truck-trailers. Using the company as a case study, Markus Bussmann set out to determine how enterprise risk management instruments can be implemented in an SME, identify the hurdles brought on by this implementation, and ascertain whether strategic as well as operational challenges can be overcome effectively using ERM strategies.

Since the development of risk management systems for SMEs is still in its early stages, it was paramount to create a flexible and pragmatic risk management system that takes the individual needs of the particular business into consideration. Markus Bussmann’s goal was to familiarize the company’s upper management and shareholders with the instruments of risk management and to design the processes in a way that bolsters the decision-making process over the long term. Bussmann would need to scrutinize whether ERM is an appropriate model for a family business of the given size, and weigh its pros and cons. In the end, integrating ERM should help management and the company’s shareholders identify, evaluate and overcome risks (within the constraints of a defined risk tolerance) in order to achieve strategic targets and systematically reduce uncertainty.

Markus Bussmann’s project offered Hermann Bussmann GmbH enormous added value by providing a substantiated risk catalog for the first time in the company’s history. In addition, Bussmann analyzed the entire risk management process and assessed the overall risk environment prior to and following the introduction of ERM instruments using a high-performance simulation method (Monte Carlo simulation). A management process was also created with ERM, which attempts to control the most significant risks within the designated range of risk tolerance.

His work demonstrated that ERM produces the same benefits in family businesses as it does in public corporations, and also generates value beyond meeting regulations. Moreover, ERM delivers a certain level of protection against cognitive bias, and thus replaces affect heuristics with rational-logical decision-making methods. As a result, loss potential can be limited strategically despite a complex environment, opening doors to significant business opportunities.

Markus Bussmann’s conclusion: Opportunities and risks will always exist in business. But there are always chances to seize opportunities, repel or avoid risks, or to better overcome their consequences. Enterprise risk management prepares family businesses for business losses and helps them think with a level head.

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