When your organisation is expanding and your focus is on business growth, risk management is vital so that your development is sustainable and manageable.
The reality is you cannot grow a business without taking risks, and you cannot take risks without being prepared.
The risk-reward curve cannot be suppressed.
If you think that you can move up the reward axis without taking risks then you will likely do the exact opposite! In order for risk to seem less ‘risky’ there are steps you can take to calculate risk and and put strategies in place.
Growth strategies are a real test of leadership and organisation. They seek to transform mindset and culture.They take courage and commitment. They also quickly add cost and complexity. Failure can be serious to careers and business survival. Given the stakes and the obvious challenges, it is surprising that success is often undermined by incomplete or perhaps wishful thinking, loss of control or even loss of nerve.
The missing component is often a sound grasp of risk. This ingredient makes plans bolder, better informed and more likely to be delivered. It strengthens control without increasing bureaucracy. During the inevitable periods of high uncertainty and business stress, it keeps priorities clear and focus steady. Not least, it ensures that reputation and values are not casualties of ambitious plans and volatile times.
“Without continual growth and progress, such words as improvement, achievement, and success have no meaning.”
The entire management team must incorporate the risk dimension fully into any evaluation or discussion of performance and plans. This does not involve sophisticated calculations or methodologies. It is a way of working. It requires only a basic understanding of the measure and perception of risk. But it must rise above the human discomfort with uncertainty, and the biases and misperceptions of risk assessment.
There is in addition to the “Risk Toolkit” for projects, plans and portfolios. These are a series of analytical models that introduce a vital element of calculation and control into risk taking.
There are four models that are the most useful to a growth strategy:
· The critical Risk-Reward graph ensures that you do not succumb to the usual extremes of risk aversion and rashness. It filters out the risks that, however rewarding, lie beyond your appetite, and partners would be needed to take them forward. At the other end it ensures that you do not confine yourselves to the low-hanging fruit. Bigger growth requires you to reach a little higher than that!
· Scenario analysis uses the impact-likelihood graph to identify the possible challenges ahead, and to prepare for them.
· Decision making analysis enables the comparison of risk-weighted alternatives by attaching probability estimates to alternative outcomes.
· The company Risk Log permits the senior team to keep a firm grip on the most important risks that result from the growth strategy. It complements the periodic accounting analyses of performance and prospects. It reinforces accountability for success.
“Only those who will risk going too far can possibly find out how far it is possible to go.”
Some risks are self evident and immediately attract the proper attention, for example forecast demand levels, competitor reactions, and product/service performance. But there are others that can get lost from view.
The most common among these are:
· Product/service costs
· Sourcing and supply continuity
· Key manager retention
· Robustness of key administrative systems and controls
If clearly identified at an early stage, the leadership team can treat these as priority issues deserving close scrutiny and support.
Employing a successful growth strategy is a smart way to develop your organisation and build for the future, but is is also one that is often missing.
A Growth Strategy is one of the most rewarding features of leadership for growth, and can introduce ways of working that will serve the business well at all times.
Tony Crouch is an expert in risk management. Helping managers and boards effectively direct and control their business. Using a blend of training, facilitation consultancy and coaching, Tony supports clients in the areas of strategy, company policies, risk management systems, financial management and internal control.
Please us the contact form to get in touch with Tony to discuss how risk assessment can help you to grow your business.