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Process Innovation blog

Blog December 12, 2016

Not scared, Prepared!

The future is a scary place, full of change, unknowns, and mired with regulations and threats we are still yet blissfully unaware of.

In these days of an increasing sense of urgency and insecurity it can be quite comforting to remind oneself that despite everything

  • Things are actually quite good
  • Our brains are hardwired for survival in a harsh environment, and we carry this instinct with us in business as well; 99% of scenarios we may worry about actually don't come to pass
  • For the 1% of bad things that do occur, there is a potential remedy; taking action and being prepared!

Taking stock and inspiration from people who truly prepare for the worst, we're talking zombie-apocalypses and breakdown of the world as we know it – survivalists (preppers) - the catchphrase of the day is the headline of the post; not scared, prepared!

A potential remedy may be great news - but how does one prepare for the appropriate 1% of the perceived risks and threats?

There are a few factors which to a large extent - considering the 80/20-rule - can mitigate practically any risk or negative outcome, making scenario-specific details (barring earth-shattering comets and nuclear fallout) less risky.

Preparedness

- Risk inventory

Whether considering the risks from a gambling perspective (there's always a 1/37 chance a bet on red or black will be very wrong ..), or taking a purely financial analysis view (what is it worth to mitigate a 1% risk of a 1M loss/cost? - or to mitigate a 99% risk of a 10k loss/cost?) of different scenarios, the value and outcome lies very much in the process of the work itself; putting in the effort and gathering the organizations thoughts on where threats may lie. Similarly to e.g. project planning, paraphrasing Moltke (the Elder) - "No plan survives contact with the enemy", the job isn't done once the inventory, or project plan, is outlined and documented; it's the activities and awareness its inception has triggered which carries the real value, and when applied to reality, you need to adjust and amend the plan (inventory) accordingly.

Entire books have been written on the subject of risk and risk inventory so this won't be an attempt at summarizing the topic, but if you haven't had a chance to read up and immerse yourself in this area just yet; try starting out with identifying the categories and severity of risks which could affect your business, or prerequisites - enablers - for your business. External/Internal, Customer-related, competition, market, regulation/legislation, production, input resources, financial, geopolitical, media, CSR .. depending on your line of business and industry, the combination of prioritized areas to consider varies. When identified, it's useful to map the risks into a matrix with axis for impact vs likelihood, and weigh in the financial cost implications to see the potential ROI for what allowance can be made to fund avoidance or elimination of each risk.

Resilience

- Know your options, maintain alternative fall-back strategies

Apparently, we should expect a tire blowout every 100000 km - but most of us are quite keen on making sure that the spare tyre is securely in place for the 9999x kms travelled on other occasions as well. You probably have a second alarm set in the morning, just in case you snooze away the first wakeup call. We should take a similar view from a business perspective. In short - try to find whichever 'single points of failure'-factors you may be dependent on for your business, internally as well as externally, and with the ROI view from the risk inventory; invest in and allow for fall-back strategies when possible.

Some may even be cash-flow positive; bringing in a second supplier of standardized parts for a subset of the overall materials sourcing could trigger some healthy competition price-wise between the suppliers. Some may be simple; keeping a few printed lists of employee phone #'s in case the AD needs to be recovered/rebuilt. Important to remember is of course interdependencies between systems or business processes - and that the end-to-end output is only as resilient as the weakest link it is dependent on. With elevated levels of complexity in larger organizations, this perspective needs to be encapsulated on a modular level, by process, or department, or

Spread the risk

- Hedge your bets

We're all acutely aware of the old proverb regarding too many eggs in one basket - and the same principle applies to this context as well. Easier said than done perhaps, especially when growing your business organically from the ground up - but keeping the risk/resilience-factor in mind when reviewing new business delivery scenarios will have a healthy impact over time. Even sharing business with partner companies in the industry, on a quid pro quo basis, may be cost/revenue neutral whilst increasing resilience in downturns for both companies.

Large, perhaps even multiple contracts with singular Customers can be a great opportunity to generate the margin to grow the business, and shouldn't be devalued on the basis of risk vulnerability - but the steps taken from that position should be in a direction which builds alternative revenue sources. All good things ..

Hopefully a lot of this sounds like common sense, and is already part of your governance efforts. The trick to it, is to work consistently with these angles of your business as they usually need to take a back-seat position in relation to the pressing day-to-day issues and tasks of delivering the services and products to your Customer. Making it part of the quarterly review or board reporting format, may be good placeholders to aim for.

"The only thing we have to fear is fear itself" (F. D. Roosevelt) - All risk carries opportunity and reward, as long as it is managed!

 

Fredric Travaglia, Business Development Consultant at Enfo