Risk management in Singaporean SMEs
In light of the turbulent business climate filled with intense competition and grave uncertainty, risk management is becoming an increasingly essential practice for small-medium enterprises (SMEs) to have. Some questions would weigh on the minds of SMEs. What key risks does SMEs face? How can SMEs practice risk management?
This article will seek to provide a summarised overview of some of the common risks SMEs currently face and propose ways SMEs may practice risk management through the implementation of an ERP (enterprise resource planning) system.
By definition, risk management is the identification of possibly occurring problems in the future. It also involves the taking of precautionary steps to mitigate and avoid the impact caused by such risks. (Investopedia)
Possible risks faced by SMEs
Though being known as companies with annual turnover of less than S$100 million and employing less than 200 employees, SMEs in Singapore contributes to at least 99 per cent of the national economy and employing about 65 per cent of the country’s workforce. (UOB Global Economics & Markets Research). With less complex operational processes, SMEs are still susceptible to business uncertainties, for instance, in finance or human resource management, especially when the market is more and more competitive.
- Financial Risk
According to the 2017 SME Development survey, it was revealed that there was an increase in the number of SMEs who faced finance-related issues which mainly resulted from delays in payments from clients. Among the 35 per cent of SMEs who cited facing financial problems, the percentage of companies facing delays in payments burgeoned from 14 per cent to 81 per cent in 2017. Such payment problems often lead to the risk of cash flow and working capital problems among SMEs.
- Labour Risk
Labour risk is another pressing issue which SMEs commonly face. With the high standard of living in Singapore, fewer local employees are willing to apply for low-paid service-based jobs. Additionally, in Singapore’s tight labour market – tightened manpower policies along with rising demand for digitally-skilled workers and employment quotas, it is increasingly difficult for SMEs to hire the right employees to fill in the gaps. “The top business challenges that small and medium firm faces are hiring people with the right skills and attitude.”, quotes Mr Ho Meng Kit, the CEO of Singapore Business Federation (SBF). Small business owners know better than anyone else that it is not easy to hire good employers. Hiring good workers is often a long and tedious process.
- Competitive Risk
Competition is probably one of the biggest concerns SMEs today face. It is a well-known fact that competitors make it hard for international businesses to survive, let alone SMEs. The presence of local competition is no stranger to SMEs, but when international and online competition comes into the picture, SMEs will face a whole different set of challenges.
How SMEs can practice Risk Management
- Having a dedicated risk assessment team
For many SMEs, risk management is practiced in daily operating activities albeit being informal and lacking in structure. Some SMEs may already be practicing the use of risk assessment teams within their company. According to the Ministry of Manpower Singapore, risk assessment teams should consist of a number of management figureheads or alternatively the role may be outsourced to an experienced safety consultant as well. The risk assessment team will be responsible for assessing, controlling, monitoring and communicating risks.
- Investing in an ERP system
A report by KPMG revealed that the majority of business owners still focused on reducing and minimising risks only. However, risk management is not only to eliminate threats but also to understand the risk profile and proactively make the necessary optimisation as well. Investing in an ERP system can help to automate your business operations, thus, reducing risks and improving the decision-making process within your organisation.
An ERP system can assist your business in keeping track of and forecasting demand as well as creating real-time information flow to eliminate supply risks. It also allows SMEs to keep tabs on their suppliers, which helps to avoid any potential disruptions in your business operation.
Besides technological solutions including automation, artificial intelligence (AI) can benefit SMEs by improving business efficiency and manage costs more effectively (Enterprise Innovation 2018). In terms of Human Resource management, cloud technology is pointed to have contributed to more efficient hiring decisions, transparent work insights and better employee’s satisfaction.
In conclusion, a well-conceived risk management plan is imperative for SMEs to survive, operate and prosper in the volatile business environment. If your company currently does not have any form of risk management in place, it is strongly encouraged to start evaluating your business threats and planning out strategies to wipe out uncertainties in your organisation. SMEs can consider implementing risk optimisation through establishing or outsourcing a risk assessment team, or acquiring a cloud-based ERP system. If you are interested, you can read our article on how an ERP system helps SMEs overcome challenges.
In the effort of supporting SMEs, the Singapore government has been offering different grants to encourage technology investment which facilitates local companies’ business performance. As an approved ERP software vendor, Synergix Technologies have been helping hundreds of SMEs to successfully acquire the governmental funding and to improve businesses’ productivity and efficiency with Synergix E1 ERP System as well.
You can contact Synergix ERP consultants anytime to discuss your business risk management solutions or to figure out which government grants your company can tap on.