In the prior article, I introduced a 4-step process for Strategic Planning that any organization can implement. While planning establishes a set of activities for addressing needs and overcoming challenges, even the best plans can be disabled by unplanned events. When unplanned events occur, they require investigation and perhaps a response. These unplanned activities can drain resources and can derail revenue plans for one or more quarters. In some cases, these events can take down an entire company. Insurance can help, but there’s much more that businesses can do to insulate themselves from risk.
Risk is something you can’t control but you may be able to mitigate if it occurs. When risk does occur, it can impact your existing operations (quality, disruption), profits (lower revenue and/or higher costs), and even your long term sustainability (loss of customers and/or market share). Risk planning is actually a key part of strategic planning. Here’s a simple approach for building your own risk plan:
First, create a list of risks using the following outline of “threat categories”:
External Threats
Competitive product launches
Environmental impacts
Economic downturn
Political changes
Regulatory Changes
Security breach (physical)
Security breach (logical)
Internal Threats
Customer / Market loss
Employee turnover
Financial exposure
Quality issues
Product launch failure
Criminal activity
Failed acquisition
Second, create a simple matrix to score two dimensions for each risk:
Impact on the organization (H, M, L)
Strategy (financials,
Operations (products, quality)
Sustainability (can we survive)
Likelihood of occurring (H, M, L)
Strategy (financials,
Operations (products, quality)
Sustainability (can we survive)
Third, create a list of initiatives to mitigate the risks with the highest scores:
Select the risks with the highest scores for Impact (H) and Likelihood (H)
Identify one or more initiatives to reduce the scores for each risk
Estimate costs for each of the initiatives identified above
Estimate costs to address risks with high scores that may occur
You now have completed an outline for a risk plan
Now, you’re ready to incorporate the risk plan into your strategic plan. Add the list of initiatives to the portfolio of planned projects for the year. Add the estimated costs for covering risks that may occur to your company’s budget reserve. Throughout the year, make sure to review the risk portfolio (list of risks) to determine if there are any new risks to consider and review the risk matrix to determine if the scores have changed for the existing and new risks. Any changes may impact the risk plan and the strategic plan. All this planning may seem like a lot of extra work. But, the failure to plan for risk only increases the likelihood of failure. Over time, you will be able to reduce the likelihood that you’ll be surprised by unplanned events (physical, logical, or biological = Coronavirus).