In Risk Management, Small Oversight Can Equal Big Impact

Nov 13, 2014

Credit: Stuart Miles at

Credit: Stuart Miles at

Oftentimes we are so focused on analyzing those things that can go wrong in production that we forget about the impact from the more indirect problems that can be just as crucial as missing a delivery date. In today's world, regulations are such a large part of doing business that companies of all sizes, from small businesses to major corporations, tend to overlook some areas that indirectly impact profitability. There are many compliance areas to consider, but a large area that can devastate profitability is behind the scenes and away from where the actual manufacturing and creation of products take place.

We find today that an area of compliance where both small and large companies get tripped up is in reporting. Reporting is a critical part of any business operation, but if it's not done carefully and correctly, it can end up causing problems. Sometimes the issue is just understanding how and what you are to report, and in each case there is a significant amount of time required to become familiar not only with the regulations but all of the areas of the business where those regulations could have an impact.

For example, understanding how foreign trade agreements impact both partnerships and the components that each party brings to the table is a significant challenge in making sure that your competitive proposal is compliant, especially when teaming up with a partner and bidding on federal contracts. Compliance after the contract is awarded is a big part of a company's business process execution in providing products and services to the various federal agencies.

Another example is when dealing with the federal government and serving that customer overseas. International Traffic in Arms Regulations (ITAR) can come into play -- even in product areas that seem to be innocent. Still, it is better to do thorough research and educate employees that are responsible for any of the areas where these regulations can increase risk on contracts.

Meeting small-business goals is another regulatory area that has become increasingly challenging for both the large prime corporation as well as the small-business partner. Each party has a significant role to play and the responsibility of understanding how to maintain compliance in order to grow a strong strategic partnership. Small businesses that are certified in various categories, such as women-owned or hubzone,are responsible for making sure that they maintain compliance by continuously updating their knowledge on regulatory definitions. Likewise, large businesses need to require verification of their small-business partners to make sure they are maintaining compliance in areas such as size standards.

How do you avoid these risks?

1) In each business area -- whether on the manufacturing floor or in the contract management offices -- it is wise to set up an oversight team. This team can work to lay out a compliance plan that operates like a checklist so that each project has a dedicated person or team to review and edit as necessary.

2) For every request for proposal (RFP) that you answer, have a clear understanding of the regulations and their impact to your business while under contract. Keep in mind that a proposal that turns into an award becomes a part of any federal contract. Read the RFP carefully because it is likely to include all of those regulations where the government requires compliance while you are performing the work. As the ultimate safeguard, you must have a clear understanding of the regulations governing your industry that may not be included in the RFP.

3) Make sure you stay up to date on all small-business regulatory changes, whether you are a small firm or a large corporation. In the last two years, there has been a tremendous number of changes that provide both benefit and create risk to small business as well as large organizations.

Compliance can often seem like a job of its own, as it requires a lot of time and attention to detail, but doing your research will go a long way in protecting your company from making silly mistakes that can impact your bottom line.

Doña Storey is the American Express OPEN Advisor on Scale Up, advising entrepreneurs on how to find rapid growth through corporate and government procurement as well as helping large organizations scale their entrepreneurial partners to better meet demand in both the commercial and government marketplaces. She is an entrepreneur herself with extensive experience running and scaling up a business.