By Jeff Mandel
RISMEDIA, Jan. 30, 2007-You're probably wondering what rock climbing has to do with real estate. Well, a lot more than you think.
A rock climber may climb the same route on the same mountain multiple times, yet they can never lose focus because the terrain on the mountain is constantly adjusting and climbers need to be prepared for the inevitable change. Even if you're not an adventure seeker, you can certainly agree that changes are an inevitable part of life. Most variables in life are constantly adjusting around us.
Here are five key categories that tend to impact most things in life:
Weather
Economic environment
Family and friends
Politics
Work
The challenge is that many individuals in life don't spend enough time planning for the known future let alone the unforeseen events that lie ahead. For the purpose of this column, I will focus on mitigating business risk based on weather and the economic environment.
Weather
Weather can be unpredictable and wreak havoc on a business. Everybody is aware of the massive challenges created by hurricanes and other major storms like Katrina.
However, I would bet that many individuals reading this column have continued putting off disaster recovery and contingency plans within their own companies because it is not the fire of the day, despite the learnings everybody experienced in Louisiana last year.
A more common weather-related issue is electrical storms that can shut small and major metropolitan areas down for material amounts of time. Do you have disaster recovery plans in place that enable a portion of your work force to continue operations during times like these? And, does your company continuously electronically back up critical data and files in a redundant location? If not, this should become a top priority item for you and your leadership team to resolve during your next fiscal quarter.
Economic Environment
As most real estate companies are experiencing, it is much easier to manage a business and hide mistakes during a good economic cycle. It is also common for many companies to take their eye off the ball and lose some of their fiscal discipline during these good cycles.
However, it is more critical than ever during these cycles that you, your CFO and leadership team use a tremendous amount of discipline during the good times and ensure that any fixed overhead and capital expenditures are well within your means. It is imperative that within your budgeting process you perform sensitivity analysis on your financials to assess the positive and negative impacts that changes in key variables can have on your bottom line. Using this discipline will help you understand your upper and lower limits and what financial risk your company can reasonably withstand in all economic cycles, without overspending.
Jeff Mandel isthe found and president of Prism Professional Solutions. For more information, e-mail
