By: Michael Harding, Senior Risk Solution Specialist, Markel Specialty
Take a look around. You must be so proud of where your winery is today! You’ve worked very hard to develop, finesse, and grow your winery to what you see in front of you. Countless hours and limited staffing have created a place of pride!
You took a lot of risks to get your winery to where you are today. In fact, your winery probably wouldn’t exist if you hadn’t taken some of those risks. But now that it is more established, the risks are more significant – there is just so much more to lose! A serious calamity could be detrimental to all that you’ve built. And, unfortunately in today’s “mid-COVID” economic environment, limited staffing may present many challenges to your winery and it may be difficult to allot sufficient time to think about the many ways your winery might be impacted by previously unthought-of risks. Risks can be managed, however. Whether your winery is small or large, you have the responsibility to your employees, your clients, and yourself to invest in risk management planning.
A lot of winery businesses only think about buying insurance when they think about risk management. However, many wineries don’t give much thought to other ways that they can protect their winery from the numerous risks that they face. Some risks are random and unpredictable (like weather and acts of nature). Others are more predictable and can be planned for – such as costs of supplies, overhead, new hires, and equipment replacement. There are also the other kinds of events that can – and do – happen almost anytime; they can disrupt your operations, take a chunk out of your reserves, kill your bank account, and cripple or destroy your winery.
Trying to get your arms around all potential risks and attempting to completely eliminate them is unrealistic. On the other hand, not paying enough attention to relevant risk management issue can leave you unprotected. To that end, it makes sense to be cautious. The biggest challenge in risk management is to find the proper balance between peace of mind and running your winery.
Simply stated, risk management is a discipline for dealing with uncertainty. It provides you with an approach to recognize and confront the threats you face. Risk can be very complicated, but it doesn’t have to be. Every winery can start with a simple, easy-to-follow plan that can manage and lessen risk. If needed, you can expand from there.
Risk management goes beyond just identifying risk; it is about learning to weigh your risks and making decisions about which risks deserve immediate attention.
There are many ways to undertake risk identification; the key is using a system that allows you to identify major risks facing your winery. It is important to make a list and examine every risk, no matter how small; they could develop into something more serious over time. To begin, a risk assessment might start by examining some of the different aspects of running your winery. You could look at your:
1. Management practices
2. Hiring and volunteer policies
4. Staff, guest, and visitor safety
5. Growing, harvesting, and production methods
6. Insurance coverage
7. Property and facilities
9. Workers compensation
10. Crisis and emergency planning
11. Auto and mobile equipment exposures
12. Social media
Although this might, at first glance, appear to be complicated and involved, a simple way to start your own self-assessment that may be useful is to gather a few members of your staff representing various functions of your winery, and conduct a brainstorming session by asking a few questions:
1. What can go wrong?
2. What are you concerned about?
3. What will we do to prevent harm from occurring?
4. What will you do to lessen the worry?
5. How will you finance?
Your answers to each will provide you with a direction for necessary action.
From this session, you’ll undoubtedly have a sizable list with many concerns. And, just making a list of all possible risks is not enough. It is easy to quickly become overwhelmed, so you’ll need a way to take the risks you’re facing and put them into perspective. Not all risks are created equal. Risk management is not just about identifying risk; it is about learning to weigh various risks and making decisions about which risks deserve immediate attention. In doing this you will often find that your winery’s vulnerability to a risk is often a function of financial impact. What are the odds that a particular risk will materialize, and how much is it likely to cost? How much does your winery stand to lose as a result? This helps quantify which risks are worth worrying about and which are not.
Using a Risk Matrix in Your Risk Assessment
A risk matrix is a valuable tool you can use to help determine both the likelihood and the consequences of any particular risk. It helps you focus your attention on those issues that have higher consequences. In such a matrix, the likelihood is rated from probable to improbable and the consequences are rated from acceptable to intolerable. A risk that is almost certain to occur but has few serious consequences needs little attention. This enables you to identify and mitigate risks that may be less certain but have greater consequences.
Prioritize Your List
Once you’ve assessed your risks, you can begin to take steps to control them – giving priority to those with the greatest likelihood of occurrence and/or biggest potential impact.
Select appropriate risk management strategies and implement your plan. Here are four basic risk management techniques that can be used individually or in combination to address virtually most every risk you face:
1. Avoid it: Whenever you can’t do something with a high degree of safety, you should choose avoidance as a risk management technique. Don’t engage in an activity or provide a service that pose too great a risk. In some cases, avoidance is the best technique because many wineries don’t have the financial resources required to fund the training, supervision, or other safety measures. Always ask, “Is there something we could do to provide this safely?” If the answer is “yes”, risk modification (#2 – next) may be more practical.
2. Change it or modification: Modification is simply changing an activity or service to make it safer. Policies and procedures are examples of risk modification. For example, if a winery is concerned about the risk of using unsafe drivers make deliveries, they might add Department of Motor Vehicle (DMV) record checks to its screening process.
3. Take it on yourself/retention: A winery may decide that other available techniques above aren’t suitable and it will retain the risk of harm or loss. For example, when a winery purchases liability insurance and elects a $1,000 deductible, it’s retaining risk. Where organizations get into trouble is when risk is retained unintentionally, such as within the exclusions of their insurance policy.
4. Share it: Risk sharing involves sharing risk with another through a contract. (Insurance is an example that shares the financial impact of risks.)
Monitor and update the risk management program. Your winery is a dynamic one that constantly faces new challenges and opportunities. Risk management techniques and plans should be reviewed periodically to make certain that they remain the most appropriate strategy for your needs and circumstances.
The ultimate goal for your winery regarding risk is to create a culture where risk is routinely examined and managed, simply as part of your organization’s overall business process. Risk management starts with the management of a winery. By operating in a transparent and ethical manner, a lot of risks are mitigated by promoting a sense of accountability.
We can’t know what lies ahead, but we do want to be prepared to respond to future events effectively and gracefully. Make a conscious effort to identify and manage your exposures. Ask:
• Can you avoid or eliminate the risk?
• If not, can you control or mitigate the risk?
• Can you transfer the responsibility of finance?
Reckless leaders take reckless risks; prudent leaders take calculated risks. Risk management is the “calculator”. Kayode Omosebi
YOUR RISK MANAGEMENT PROGRAM
The next step is to involve others in your efforts. Remember that an effective risk management program can never be the responsibility of one individual. If you’ve already engaged a group, task force, or committee in identifying risks and strategies, you’re well on your way to implementing a risk management program.
Keep in mind that many effective strategies for managing risk in a winery may not require any additional expenses. Time, attention, and resolve may be all that’s needed to increase the safety of vital assets. Give your team a deadline—a date by which you plan to have made significant progress in achieving your risk management goals. Review your progress frequently and set new goals as you achieve the existing ones.
As we have discussed, risk management need not be a complex and bewildering array of technical terms, actuarial tables, or probability statistics. On the contrary, risk management is, in large part, the application of healthy doses of common sense and sound planning.
Remember that the simpler the risk management strategy is, the more likely it is that it will be applied. Yes, there may be items that are not considered in the first iteration of the plan, but at the outset, it is more important that your program be comprehensible rather than comprehensive. As you continue to develop and refine your plan, what now seems new and strange will become second nature.
As time passes, your plan should become more inclusive as you address more risks in order of their priority. As stated at the beginning of this article, risk management is a process not a task, therefore it is important to constantly review what you are doing, celebrate your triumphs, and analyze the reasons behind any setbacks.