Address Risks to Stay in Business!
As an owner operator you face plenty of risk, particularly financial risk. But with proper planning, you can reduce the impact to your wallet if the tightrope should break.
Risk is the exposure to danger or loss. A risk becomes an issue when the exposure becomes reality. Your plan to reduce the probability of a risk becoming an issue will be your saving grace from financial loss. This plan is called risk mitigation.
Let's use a simple example to explain. Let's say you have a load that needs to be picked up at 7 AM. It's now 8 PM and you're settling in to your 10 hour break, exhausted from a day of driving.
Your exhaustion and need for rest creates a risk that you could oversleep and miss your load and lose the income from that load. To reduce the risk of oversleeping, you set an alarm on your wristwatch to wake you in time to pick up your load. By setting your alarm, you have reduced (i.e. mitigated) the risk of losing your load.
You could go a step further and create a backup plan in case your wristwatch alarm fails. You could use a non-battery operated wind-up clock and set its alarm. This backup plan is redundancy and further reduces the risk that you will oversleep.
So what can you do to prevent a risk from becoming a financial issue? First, you need to grab a pen and paper and brainstorm a list of anything that could possibly go wrong as an owner operator.
The US military goes through this exercise with each mission. They brainstorm a list of "what if this happens?" It's important to list every crazy but possible event. These become risks to mission success.
Some risks that seem implausible can be overlooked with potential devastating consequences.
For example, the US government did not consider the risk of hijacked aircraft slamming into important, symbolic structures such as the World Trade Center towers and the Pentagon. The US government did not consider the extent of devastation and loss of life from a hurricane such as Hurricane Katrina.
While these two events were highly unusual with a very low probability of occurring, the effects were devastating and long lasting. In both cases the risk of the event was not mitigated with a plan to prevent or minimize the loss of lives.
So when you start making your risk list, you need to keep asking yourself "what's the worst thing that can happen?" and jot it down. Remember, you are going to build a list of events (i.e. risks) that can adversely affect your income.
Here are a few examples to get you started. Engine failure. Flat tire. Long delay at receiver. Illness or injury. Rising fuel price. Falling freight rates. Storms. Accident. Being placed out of service at a roadside inspection. Overweight. Misplacing a bill of lading. Missing a credit card payment.
Once you've created an exhaustive list of risks, the next step is to score each risk. What you're going to do is multiply the probability of the risk becoming an issue times the approximate cost to your wallet.
The way I do this is to take a risk and make an educated guess at the chance of the risk occurring in a given year. For example, I would guess that the chance of being affected by a delay at a receiver as 95% within the next year. I estimate the cost of losing my next load due to the delay at $2,000. So to score my risk, I multiply 0.95 times 2,000 to get a score of 1,900.
Now this is not an exact science. What we are doing is to assign a score to each event so that we can then list them in priority order.
Once you've assigned a score to each risk, you will prioritize the risks in order from biggest score to lowest score.
This prioritization will then drive your next actions to come up with a mitigation for each risk. You want to place the most effort on mitigating the risks with the highest scores because these are the risks that can put you out of business.
Since there can be multiple ways to reduce or mitigate a risk, I will not attempt to provide a list of mitigations. That is your challenge as an owner operator. Only you know your circumstances and resources that can be applied to risk mitigation. But I can tell you that many of these mitigations will involve a significant cash reserve sitting in the bank.
In the Comments section below, please share a risk and mitigation that you have either encountered or have sitting on the shelf as a plan.
-May the wind be at your six and weigh stations closed.