Dean Barber

It’s All Risky Business

In Uncategorized on July 10, 2011 at 6:53 am

Earlier this week, I put together a PowerPoint presentation that I will give to a regional economic development group later this month. They wanted me to talk about site certification, a topic which I have written about for Site Selection magazine.

Now I am not going to steal my own thunder here by writing about the intricacies and requirements of site certification, but I will share with you the underlying factor that makes this marketing tool meaningful at all.

And that is the principle of risk.

It is something that we cannot escape. And while we are no longer dodging mastodons, one has to be careful crossing a busy street. In short, life is chock full of risks.

If you want to live a life of fear (and I don’t), there is risk in the air we breathe, the water we drink and the food we eat, much less coming into contact with other people who are just crawling with all sorts of germies. I would suggest you just wash your hands and go ahead and eat that occasional hot dog. Lean forward.

Risk is inherent in business. No one is going to guarantee you a profit or a successful enterprise. Starting a business entails risk. (Tell me about it.) Expanding a business has its risks. Even contracting or closing a business has its risks as there are always costs to be weighed.

What’s more, expanding a business in any location means risk.  And the process of site selection, which is a subject near and dear to my heart, is about reducing risk (and thereby eliminating sites.)

There is No Nirvana

Despite marketing claims on websites by some economic development organizations, there is no nirvana. There is no perfect place for business. But there are better places and sites where the risks are acceptable or at least manageable and where business operations can be optimized. But betting on any (your) community will always remain a risk.

This is a fundamental principle that I think some economic developers just don’t get. Careers and jobs are on the line when mistakes are made. Indeed, entire companies can crash and burn by expanding too fast or expanding in the wrong place.

I have seen it firsthand. The risks were not correctly calculated. The company overextended itself with debt by its new expansion. The newly opened plant did not last nor did the established parent company, which was dissolved in bankruptcy.

Last November, I did not correctly figure that an Ohio State Trooper would be laying in wait while I zoomed along on little used rural highway. I was aware of the risks involved to a degree. I was wearing a seat belt. But the trooper was not amused that I was traveling 12 miles above the speed limit. My miscalculation proved costly.

What I am about to tell you is something that you already inherently know, but risk management is all about identifying, assessing and prioritizing risks and then figuring out where to go next. And that, in a nutshell, is what site selection is all about. It’s what my consulting business is all about.

In the end, the best laid plans of mice and men are based on educated opinions and available statistics.

A Risk System for Fighting Wars and Site Selection

The U.S. Department of Defense should know something about risk as it frequently finds itself in the business of conducting wars, which are always risky ventures. It has a system of managing risk called ACAT, which stands for Avoid, Control, Accept, or Transfer.

It is not particularly difficult to see how this system could be applied to site selection. Some companies want to avoid high-tax states or places where labor unions are particularly active. Certain companies want to control or reduce transportation costs by being situated within close proximity of customers or suppliers.

Most companies will accept and budget for a prevailing wage for a particular type of job in an area. Finally, many companies will transfer or share risk by accepting workforce training programs offered by various states as an incentive for locating there. Alabama built training centers adjacent to the Mercedes, Honda and Hyundai plants.

These are just some simple examples that come to mind. There are more, mind you.

Changes in procedures, technology, schedules, budgets, market conditions, political environment, or other factors typically require companies to re-assess risks. As the automobile assembly plants in Alabama are modern and are operated by relatively healthy companies, the risk of them closing any time soon is small.

But there will be the day, it may be 30 or 40 years from now, that any or all of these plants will be closed because it is judged that the risks outweigh the benefits. Some person or group within the company will decide that this particular plant is no longer the efficient profit center that it once was and that shut down is a better option than rehab.  Ford and GM are no longer building vehicles in Atlanta for that very reason.

So risk assessment, risk management is the root to corporate downsizing as well as corporate expansions. I would suggest that many if not most of the 14.1 million unemployed in this country are the recipients of business decisions based on risk assessment. That is not an indictment of business. Far from it, businesses usually do what they have to do to remain in business. It has been a matter of self preservation.

Playing Russian Roulette

Speaking about risk, the economy remains very much at risk. Part of this is due to a dysfunctional nature of our federal government, which appears to be far removed from life in America. The fact is that Congress should not even be thinking about playing Russian roulette with the national debt. The United States simply cannot default on its national debt. Doing so is uncharted territory where things could get really ugly fast.

Now the good news is that there is a basis for an agreement to be reached. Both parties agree for a reduction in spending. As I write this blog, the latest news reports would indicate that a deal is being hammered out in Washington to raise the debt ceiling while reducing the deficit by trillions. This simply has to be done. Default in not an option.

Whether the deficit-cutting measures are to include increased tax revenues, well, that is the big question. Frankly, I don’t see how it can be done simply with spending cuts alone. Indeed, most economists tell us that taking such a course could imperil what little economic recovery that has taken place.

We Need Grown Ups

Having said that, I would favor lowering corporate tax rates, but only if certain loopholes are closed that currently allow certain saavy corporations to effectively pay no federal taxes.

Yes, we need to reign in our deficit. Yes, we need to create new jobs. Both are possible if grown ups in Washington (yes, Mr. Congressman, I am referring to you) do their jobs and not let ideology get in the way.

The news Friday that the unemployment rate rose to 9.2 percent only underscores that an economic recovery remains at risk. Only 18,000 jobs nationwide were created in June. These are dismal, almost jaw-dropping numbers.

The risk to the nation is real. The risk to sustainable business growth is real. The risk to how we lead our lives is all too real.

Let us hope that politics can be set aside and a deal is reached that serves as a blueprint for future economic growth and prosperity. While there is no such thing as absolute certainty in business, companies in America want a stable framework from which to operate. They don’t have that right now.

Here’s a radical idea: Let’s give it to them. Let’s reduce the risks.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm in Red Oak, Texas — www.barberadvisors.com  You can reach him at dbarber@barberadvisors.com or at 972-890-3733.

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