Talking Supply Chain: What level or risk are you willing to accept?

Supply chain disruption is now an everyday occurrence. Whether it is weather, cyber hackers, geopolitics or material shortages to name just a few, managers face daily risks that must be addressed.

But no matter what level of mitigation efforts a company employs, eliminating all risk is nearly impossible. That means the company has one big question it must answer, and it is not how to beef up its risk mitigation efforts. It is this: What is your level of risk tolerance?

Loren Johnson, senior director of product marketing and the “Risk Evangelist” at Aravo, joined the Talking Supply Chain podcast to answer that question.

“You can never really eliminate risk a nd I think that risk professionals understand that,” Johnson said. “You can kind of change its character, you can reduce it. You can apply all your kinds of defenses … but you’re still going to have something that remains and risk tolerance is basically defining that by saying, I can live with this risk that remains. I’ve done everything I can to reduce it. I’ve done my due diligence. I’ve done my assignment of controls and applications of other kinds of defenses, and I can defend this. If I have a situation where something occurs, I can defend it to my shareholders. I can defend it to auditors. I can defend it to enforcement agencies. But essentially your risk management process is you having that risk appetite.”

Aravo is a third-party risk management firm, and Johnson has spent more than eight years focused on risk management. He advises companies to look at the level of risk they are willing to accept, and that could be different in every department of the organization. For instance, a company may have zero tolerance for any risk that runs against a regulation, but may be more flexible in the amount of risk it is willing to assume when it comes to its supply base.

“Risk tolerance comes down to what can you live with as a risk,” Johnson said. “What can your company actually accept? And it really is different across those risk categories and risk domains.”

To hear more of Johnson’s conversation with Talking Supply Chain host Brian Straight, listen today.

SC
MR