What role does risk management have to play in a recession?
For most companies, preparing for and surviving the downturn means brutal cost-cutting in order to survive. So why would we spend time and money on improving our risk management processes at such a time?
In fact, effective risk management can help us survive the downturn and then provide a springboard to take advantage of the recovery, when it comes. And the ROI can be extremely compelling.
Minimising the Downturn:
The two key things that we need to do as businesses in these difficult times are:
- Reduce costs: Many cost cutting exercises are done without effective analysis. They are based on using single-point estimates without capturing or explaining the underlying assumptions and without understanding the risk within those assumptions. Using a proven quantitative risk analysis process such as Strategic Delivery Assurance (SDA) is far more effective because it uses ranges of estimates (minimum, mean, maximum and disaster scenarios) and rigorously captures the underlying assumptions and systematically tests them for risk. This will allow you to maximise efficiencies by ensuring that all key risks are managed and opportunities are taken. You will also be able to predict accurately the potential % confidence of meeting your budget targets and see the route to increasing that confidence level by managing quantified assumptions.
- Retain clients: In a down-turn the last thing you want is to lose key clients. The easiest way of doing that is to not deliver on your promises. So, for example, when you are delivering a strategically important project for a client, you must do everything you can to deliver the key objectives on time, or at least manage expectations appropriately. Using an effective timescale risk analysis approach, such as SDA, you can virtually guarantee delivery on time (or even early) by systematically working through the SDA assumptions and progressively increasing your confidence in meeting the milestones.
Our SDA methodology works by cutting through complexity to bring insight and predictability to programmes. A clear, proven process of qualitative and quantitative analysis together with structures and processes for risk mitigation and long-term success results in process rigour to identify real risks and opportunities and an injection of momentum to drive real results. More on SDA here www.de-risk.com/strategic-partners/
Maximising the Recovery
When the green shoots do appear in your business sector, the most important thing is to win new business. Risk is a touchy subject in tender situations. But good sales professionals know that risk can be a massive competitive differentiator if handled well by:
- Assessing your cost risk so that you can propose the most competitive price
- Assessing the timescale risks so that you convince the client that you will deliver
- Shadowing the competition by showing that their risks are not inherent in your offering
The last of these is almost impossible to do with traditional risk management processes, due to the fact that you would have to be overtly negative about the competition. Shadowing risk is easy to do using SDA you can simply talk positively about the key assumptions and (where appropriate) why you are so confident about managing the assumptions that the competition will undoubtedly see as risks. If the competition do not identify the risks that you are shadowing with your confident assumptions, the client will be alerted and be wondering why the risk has not been highlighted in their analysis, so you win both ways.
There has never been a better time to invest in risk management than in the middle of a recession. In recent De-RISK engagements, the business cases have indicated massive ROI’s (eg: a £15k SDA assessment leading to the identification and management of £1m of previously unidentified risk and opportunities). Doing risk management effectively really can be a no-brainer, not despite the recession, but because of it.
Leave A Comment