For most companies, it is the time of year when thoughts of next year are front and center.
What will 2019 bring? What should we do more of and less of? How much revenue and profit do we expect? What would we like to change and what will remain the same? What are our strengths, weaknesses, opportunities, and threats?
All of these are time honored questions that deserve answers. During this process it is critical to engage your risk manager or risk management partner, to better assess the decisions that you are making now as you plan for next year. Risk management plays several key roles in the strategic planning process.
- Risk based decision making. Certainly, your business plan includes some key decisions. Should we expand? Should we add a new office? Should we adjust our product offering? Each decision presents multiple alternatives; each with their own variables and pros and cons. It is easy to see the glass half full during planning season and create a rosy picture. It is harder to assess the uncertainty in the plan and only then make informed, calculated bets. However, quantitative, risk-based assessments and outcome simulations will always provide a higher likelihood of success; and informed uncertainty will always be more effective than uninformed uncertainty.
- External risks. The business climate has never changed faster than it is changing right now. Technology is moving at lightning speed. Innovation and creativity is at an ever-increasing peak. This makes it even more important to focus at least as much time on external risk as internal. What are your competitors thinking and doing? That is the obvious first step. However, more importantly, what are the disruptors to your industry thinking and doing? Disruptors are those organizations that have nothing to do with your business today; but may have everything to do with it tomorrow. These risks are changing and growing every day and require a more detailed evaluation than ever before.
- Strategic initiative risk evaluations. Once you have gotten past internal informed decision making and an evaluation of external risks, the initiatives for 2019 are now clear. All that is left to do now is make them happen. Easy? Not really. To ensure success, each initiative should be based in some level of formal project management including risk analysis. It is important to understand what could derail the project and develop mitigation plans for each item. Each decision along the implementation path includes variability and making informed decisions with qualitative and quantitative analysis at the time of those decisions, will increase likelihood of success.
So, now is the time to begin that important annual strategic planning process. Review your financial objectives with your CFO. Understand your operational goals along with your COO. Benchmark your external brand with your sales and marketing team. This year, also commit to engage your risk management team in your strategic planning process. Identify the risks associated with each decision. Conduct simulation modeling to understand the uncertainties and outcomes of each decision. Engage the data to guide you to the most informed decision. And then, set out to confidently execute on the strategy.
Risk evaluation and informed uncertainly will lead to happy planning and much success in 2019!
Seth Hausman is Managing Director of Kraus-Anderson Risk Innovation and can be reached at [email protected] or (763) 233-2057.