Every business owner is a risk manager, like it or not! Consciously or unconsciously. Formally or informally. Effectively or ineffectively.
The challenge is to conduct this role consciously, formally and effectively — at the very least as an important collateral duty. Widely variable risks confront business owners almost daily. Many are in the news media every day. Fires, auto accidents, employee injuries, earthquakes, embezzlements, burglaries, computer hacking and customer lawsuits, to mention but a few.
These represent the basic level of risk management – traditional risk management. This level addresses risks that can produce only a loss, not a profit — such as those listed in the preceding paragraph.
The next level of risk management is addressed by virtually every business in what we call enterprise risk management. This level addresses risks that produce either a profit or a loss, e.g., product design, market segmentation, business planning, strategic and operational planning, government regulations and compliance, again to mention but a few.
According to a recent survey by CFO Research and Liberty Mutual Insurance, a new third level is practiced by some, but not all, business owners. It is called strategic risk management and addresses a long-term strategic risk the business intentionally attacks “head on” that otherwise would be avoided or at least mitigated because of its high probability of incurring a major financial loss. If successful, profit potential is very high as are outcomes of market domination and successful competitiveness. (Why does Amazon.com versus box stores come to mind – and vice versa?)
I like to allude to the famous quote of Admiral David Farragut in his successful victories during the Civil War: “Damn the torpedoes – full speed ahead!”
His words fit this notion of Strategic Risk Management, where most competitors of a business “fear to tread” because they don’t want to be perceived as the proverbial “fool rushing in.”
The same CFO study found that 62 percent of business owners believe taking on significant long-term strategic risk is essential to stay competitive, yet 41 percent report they are not doing so. The study found that 68 percent saw managing risk as critical to hitting revenue targets.
Other studies show, as do my own observations, that too many of us tend to view risk management and and other management disciplines such as, quality management, project management, strategic management, operational management and financial management, to be each in their its own silo.
Instead, each dimension of management needs to be considered with all others – no matter what the size or type of business. That’s easy to say, but how can a small (or even a sizable) business make this happen?
Fortunately, a leadership tool has already been created and used around the world to accomplish this outcome — all on a single page of paper! Its ingenious design is the creation of two Harvard Business School professors, Dr. Robert Kaplan and Dr. David Norton.
On this single sheet of paper, called the Balanced Scorecard, you will find all major elements of these key strategic management disciplines. It begins with mission, vision and values statements – primary essentials for any organization.
I then outlines long-term strategic goals and annual (usually fiscal year) operational objectives within the following categories that address each leadership discipline in terms of an organization’s Key Performance Indicators (KPIs):
• Customer focus
• Continuous process improvement and innovation
• Professional development
• Financial targets
For effectiveness, each operational objective within these four categories needs be SMART – an acronym for:
• Relevant to mission, vision
This same one-page leadership tool will also help you track your progress toward accomplishing your annual operational objectives — within each long-term strategic goal — on a monthly or quarterly basis, whichever interval you prefer. You will also be readily able to see your metrics for each objective from the previous year.
All on a single sheet of paper!
If you’d like to review a sample of this ingenious and highly helpful leadership tool, email firstname.lastname@example.org for a complimentary sample – plus other related tools you’ll find helpful.
Then, use this tool to track your results and outcomes at either monthly or quarterly intervals.
Doing so will help you take your business to its next level in terms of your own unique and critical KPIs in all segments of general management, quality management, risk management, project management and more.
It’s never easy, yet the process is indeed simple. Most importantly, it works! Try it!
John Pryor is a management consultant with CSU Bakersfield’s Small Business Development Center (by SBA definition up to 500 employees). His counsel – and that of others — can be accessed at www.csub.edu/sbdc through its registration process. Counsel is without fee and in total confidentiality.