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E. g Agricultural regulations affecting pesticides in India
requiring certain, more
expensive pesticides can affect markedly net income and cash
flow.
Stay flexible.
Make a culture in the organization that allows change to occur
easily and smoothly at
all levels of the organization. Many companies that suffer
without a reason are the ones
who do not want to mould themselves in a new culture.
For example:-Enron, shortly before the fall, did not change its
risk management policies
to accommodate the new accounting standards. The company decided
to bypass the
standard and opened itself up to high-risk energy and commodity
transactions. When
Enron tried to mitigate the financial hit with creative
accounting, disaster ensued.
QUANTIFY THE POTENTIAL DAMAGE
If a law is about to be enforced soon do not wait for it to be
enforced rather act as if theregulation has been enforced already
so you get to know ahead of time what impact it
will give on the business.
E. g:- If it is a new accounting standard start incorporating it
in your budgets cash flowsand other financial statements so you get
to get a true picture of what amount of capital
should be kept aside to implement changes and what will be the
impact on your revenueand costs
Plan for a worst-case scenario:-Do not be conservative while
making changes .If changeis coming so plan it before hand. If you
have less capital reserves arrange for a back up orsave more .Risk
is expecting the worst case scenario and being prepared for it
financially
so it will help you navigate the unknown and potentially stormy
waters of change.
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Make necessary changes ahead of time not only that try to ask
for feedback from theregulatory agency.
For example, Union Carbide adopted FAS 133 nearly a year ahead
of schedule and askedthe SEC to proactively audit the company's
compliance. The SEC did and Union Carbide
was able to work out its system bugs by the adoption date
MONITORING
Monitor and manage going forward. This is just continued
vigilance which is similar to
identifying risk. Monitor and manage the risk and identify new
regulatory risks so youcan plan ahead and change yourself to gain
from the situation
