Learning Nugget 24 - Risk
If you google quotes on risk, 99% are about not taking enough risk, 1% are taking too much.
This is not the first post in which we’ve explored risk.
But to date risk has been discussed in generic and vague terms. Let’s get a little more granular.
Risk comes in many shapes and sizes.
The risk OF doing something
The risks of NOT doing something
Secondly, there is;
Personal risk. Risk to you or your team
Corporate risk. Risk to your company
Operational risk. Risk in how things are done
Thirdly, there are levels of risk;
Boards and CEOs. Risk at this level is the #1 outcome consideration (before revenue at #2 and cost at #3). Risk here is corporate, strategic business risk.
Senior executives. Risk at this level is their #2 consideration. Revenue and cost are equally shared as primary focus areas they tend to switch between #1 and #3 any given week or month. Risk here is most operational risk.
Front line executives (aka middle management) tend to be focussed primarily on cost savings. Revenue second and risk third. Risk tends to be very tactical risk, and mostly risk associated with changing things. What if the new way impedes our ability to hit our short term tactical targets.
Lets explore Board and CEO risks. These are often the hardest to define. They are macro in nature and often interdependent. A shift in one can result in a shift in another. There are 10 common risks, most Boards and CEO’s are intently focussed on. They typically consider these risks in the follow order;
Economy weakens or consumer / buyer confidence reduces. People / companies / customers stop spending
Regulatory. Governments or other regulator bodies impose limits, restrictions or overheads that reduce market opportunity, scare away customers, add significant cost
Reputational harm (brand). Self inflicted mostly, by poor product, poor decisions or bad judgement
Disruption. Missing a market transition. Being blindsided, often by those it was least expected from
Talent. Getting it and keeping it.
Innovation and Competitive Advantage. In times of such rapid change this one continues to garner a lot of focus. How to not just keep pace, but breakaway
Interruption. Acts of god if you will, things that prevent business operations
Commodity risk. Even those in services industries are impacted by global commodity pricing fluctuation. It’s the core of #1 above. But for manufacturing companies it’s the difference between profit and loss
Cash flow / Liquidity – when the bills don’t get paid, the money has to come from somewhere, the costs don’t stop
Political risk. More and more this is also becoming a big issue for many boards.
Understanding these risks, not generically, but specifically for your client, in their language, from their perspective can give you a significant advantage in credibility and value.
More over helping your clients with ideas and insight on how they can,
Prevent (ensure the risk does not occur before it could or would occur. As a health example, this is taking a flu shot)
Mitigate (the risk does occur but you overcome it. A health example is you get the flu, but take medication and the flu is cured)
or manage (the risk occurs, and it can’t be overcome, so you minimise it’s impact on your business. You live with it. A health example would be diabetes and now taking daily insulin shots to live a normal life)
these risks, makes you a trusted advisor. Don’t take the easy way out and just talk about risk generically. Understand the risks in detail, what type of risk are they (using the 3 categories above), then develop ideas to prevent, mitigate or manage, those risks.