Question

Discuss how would you mitigate risk for sales process. What internal control plan would you implement?

Answer 1

Sales is uniquely positioned to address many forms of risk that directly impact the customer, and it’s based on the development and exploitation of a mutually beneficial one-on-one relationship with the buyer. This relationship is specifically developed to obtain an accurate understanding of the customer’s needs and to address those needs.

Effective Risk Mitigation Strategies

Identifying risk is an important first step. It is not sufficient though.

Taking steps to deal with risk is an essential step. Knowing about and thinking about risk is not the same as doing something about risk. Four different strategies to mitigate risk: avoid, accept, reduce/control, or transfer.

Avoidance

If a risk presents an unwanted negative consequence, you may be able to completely avoid those consequences. By stepping away from the business activities involved or designing out the causes of the risk you can successfully avoid the occurrence of the undesired events.

One way to avoid risk is to exit the business, cancel the project, close the factory, etc. This has other consequences, yet it is an option.

Acceptance

Every product produced has a finite chance of failing in the hands of your customer. When that risk is at an acceptable level, sufficiently low estimated field failure rate, then ship the product. Accept the risk.

When the decision to accept the risk is in part based on an estimate or prediction, there is the risk the information incorrectly forecasts the future. Therefore, for high consequence related field failures, closely monitoring field performance or establishing early warning systems may be prudent.

Reduction or control

FMEA, hazard analysis, FTA, and other risk prioritization tools focus help you and your organization identify and prioritize risks. Reducing the probability of occurrence or the severity of the consequences of an unwanted risk (say product failure) is a natural outcome of risk prioritization tools.

If it is not possible to reduce the occurrence or severity, then implementing controls is an option. Controls that either detect causes of unwanted events prior to the consequence occurring during use of the product, or the detection of root causes of unwanted failures that the team can then avoid.

Another method to reduce or control risk is to diversify. Thinking through the mix of products, technologies, markets, operations, and supply chains permit the team the ability to limit the high-risk opportunities to a manageable or acceptable level.

Transference

This strategy is to shift the burden of the risk consequence to another party. This may include giving up some control, yet when something goes wrong your organization is not responsible.

This approach may not work to protect your brand image if the product is associated with your organization. Even if the power supply vendor pays for all damages due to failures in their unit, the customer only knows that your product has failed and caused damage. Use this approach with caution.

A conventional means to transfer risk to another organization is with the purchase of insurance. This may require a careful analysis of the presenting risks and probabilities, yet is a viable option in some situations.

Internal controls

Internal controls are one of the most essential elements within any organization. Internal controls are put in place to enable organizations to achieve their goals and missions. Management is responsible for the design, implementation, and maintenance of all internal controls.

The five components of the internal control framework are control environment, risk assessment, control activities, information and communication, and monitoring.