3 Risk Management Metrics That Can Help You Prevent Issues

 
Team ThunderAct

Running a business comes with many responsibilities. Risk management is one of those that should be a priority. 

 

Risk management helps companies identify what could go wrong. It also determines the risks that need to be dealt with. At the same time, it includes the implementation of strategies necessary to deal with the said risks.

 

Risk Management Metrics


Various metrics can help companies. Some measure the effectiveness of campaigns. Others help analyze customer data.

 

But some metrics can identify risks early. Thus, allowing companies to avoid them from happening in the first place.

 

Coverage Ratio


This metric aims to determine the ability of the company to meet all its financial obligations. Generally, having a higher coverage ratio means it is easier for the company to make interest payments on debts and pay dividends. 

 

Measuring coverage ratio helps organizations identify if there is a possible issue when it comes to their financial situation. That said, a low coverage ratio does not necessarily indicate that the company is having financial difficulties. 

 

For an accurate evaluation, it is important to analyze financial statements well. That means you should review net income, debt outstanding, total assets, and interest expense, among others. 

 

The formula to calculate coverage ratio depends on the type of coverage ratio you want to measure.

 

  • Interest Coverage Ratio: Divide the total earnings before interests and taxes by the interest expense
  • Debt Service Coverage Ratio: Divide net operating income by the total debt service.
  • Asset Coverage Ratio: Subtract short-term liabilities from the total assets. Then, divide the answer by the total debt.

 

Product Mix


Also known as product assortment, product mix refers to the comprehensive set of products that a company offers. It helps in shaping the image of a company and the customers that it attracts.

 

The product mix includes various product lines. For this, companies have to consider the following dimensions:

 

  • Width or Breadth: How many product lines are offered?
  • Length: How many products are in the mix?
  • Depth: How many variations are there within a product line?
  • Consistency: Are the product lines closely related to each other? How close?

 

Ensuring that the product mix offered is right can help companies attract more customers, build their brand, and encourage repeat purchases. However, having too many products in the mix can be overwhelming for clients and cause them to decide not to buy altogether.

 

Pipeline Generated


Pipeline generation is a metric that will help you detect problems early. Thus, allowing you to solve them before they become more serious issues. It also allows you to understand the quality of the opportunities the pipeline generates. Because of this, you can reclassify stages based on the behavior of the sales representative.

 

Measuring this requires the use of pipeline coverage, which is a key sales indicator. To know the pipeline coverage, you have to compare the pipeline value of the team to the number of closed deals necessary based on the quota.

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