During the early stages of the COVID-19 outbreak, I shared with entrepreneurs the concept of risk management as a textbook example of a volatile, uncertain, complex and ambiguous (VUCA) world. The importance of understanding VUCA, which was developed in 1987 by leadership and planning scholars Warren Bennis and Burt Nanus, became apparent as the pandemic forced economies across the globe to pause business in favor of public safety. While many companies adapted to this suddenly perilous landscape, others failed to reinvent themselves and were forced to close.

Some of these companies might have survived — and even emerged stronger — if their leadership had considered the findings of a McKinsey Global Institute study published in May 2020. It urged business leaders to make a large-scale commitment to reskilling their workforces. The study warned that relying on past training efforts would not be sufficient, as some investments made before the pandemic may never yield the projected profitability because of sudden changes in market forces.

This finding raises the question of whether entrepreneurs should focus on rebuilding or creating new businesses strong enough to weather a VUCA-level disruption. They now know that the COVID-19 health risks are very real and ongoing. However, there are nine other risks that could hurt their businesses as well:

1. Too much wealth can pose risks to those who don’t recognize the financial security of diversification.
2. Lack of liquidity increases the risk of losing out on financial opportunities.
3. Loss of income can threaten a client’s ability to pay their mortgage on time.
4. Entrepreneurs without a succession plan run the risk of shortchanging their children or intended successor.
5. Living longer means working more years to pay for maintaining your health.
6. Having a short life means crafting a legacy plan for those who are left behind to continue the journey.
7. Having a disability means the inability to work at maximum capacity.
8. Having a sick family member means there is a risk of relationships coming under stress.
9. Accidents hold the potential to disrupt work.

The good news is that risk management is still possible in a VUCA world.

One of the methods for risk management is transfer. Also known as outsourcing, transfer typically is a more economical way of managing cash flow and the overall business. Owners can outsource risk management for a fee to companies specializing in the field. After working with clients to identify the risks and recommend solutions, business owners typically tell me that they already have insurance. This response is so common that I’ve already prepared for it by asking these questions:

• Why did you buy the policy? 
• Did the policy match your needs?
• Did you ever make changes to your policy?
• Did you name your beneficiaries?
• Did you ever file a claim?

This line of questioning typically reveals the inadequacies of their existing coverage and helps business owners realize they need to learn more. In a VUCA world, advisors play a crucial role in providing this perspective to clients. So, it’s our job to use these challenges to their advantage by helping them do the following:

• Manage volatility with speed and clarity.
• Counter uncertainty with knowledge.
• React to complexity with simple solutions.
• Fight ambiguity with adaptability.

When we help entrepreneurs identify risks logically and mitigate them systematically, we provide them the rewards of risk management. In the COVID-19 era — or any other VUCA situation — advisors can establish themselves as drivers of economic development by encouraging entrepreneurs to focus on rebuilding sustainable businesses with confidence, agility and peace of mind.

Arlyn Tan is a 15-year MDRT member from Manila, Philippines. Contact her at arlyntan@financialplan.com.ph.