By Jay Vadiveloo Identifying Small-Business Risk
Micro
Risk
Manage
ment
IN THE WAKE OF THE 2008–2009 FINANCIAL CRISIS, enterprise risk management (ERM) has come of age. The science of identifying, measuring, and quan- tifying risks—both supremely difficult and of the utmost
importance to companies—is now visible on multiple levels
of the corporate structure. Major insurance companies have
designated chief risk officers to implement ERM, and entire
departments that focus solely on ERM have been created in major financial institutions. In addition, some large corporations
deploy existing departments like corporate actuarial, internal
audit, and investor relations to support the company’s ERM
function directly or indirectly. There is, however, a different
segment of the economy—the largest and fastest growing in the
United States—that desperately needs risk management. Failure
rates in this sector are much higher than those of large corporations, yet ERM is not part of this group’s vocabulary. Any risk
management is done informally and without structure. Searching for ERM literature for this particular segment yields next to
nothing. Survey ERM professionals in the marketplace and none
seems to pay this segment any attention.
What is this important segment of the economy? It is small
business.
The Importance of Small Business
The U.S. Small Business Administration (SBA) defines a small
business as one that “is privately owned and operated, with a
small number of employees and relatively low volume of sales.”
The legal definition of what is small business varies according
to industry, and can take into account sales, assets, or net profits,
but for most businesses to qualify for federal SBA programs, they
must have fewer than 500 employees.
While enterprise
risk management
has gained a
strong following in
corporate America,
those enterprises
most in need of
risk management
remain the ones
least likely to use it .
