Thomas M. Bragg on Business Risk Management

In my opinion, few business people recognize that risk has a very real (and substantial) value. The lack of recognition is understandable – it’s hard to put a convincing numerical value on a risk that may or may not occur. But every now and then, an event comes along that provides a quantified glimpse of risk’s value. I was a witness to one of those rare events. Here’s the story… Read the rest of this entry »

It’s been difficult to come up with topics this week.  The situation in Haiti seems to consume the majority of my thoughts when I’m outside the office. Make a difference. Please donate cash to the relief agency of your choice.

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I thought I’d take a look at my Google Analytics page and see what people are searching for when they find my website. There is a definite trend. Many of the searches involve the word “example” or are geared toward identifying potential risks for businesses. Let’s talk about that… Read the rest of this entry »

Let’s take a step back for a minute. Step one of the risk management process is “Identify your risks”. Three little words so it must be pretty easy, right? Not really.

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A risk management plan is only as good as the risks you identify. They need to be specific. They need to be the ‘root risks’ or the root causes of those potential hazards (or opportunities, remember) facing your business. As you start drilling down into all of your assumptions you’ll find that it is hard to get deep enough. It’s hard to go far enough down into the details without getting derailed on meaningless tangents.

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To help out the process, I’ve developed a technique I call the “5 Coulds”. I can’t claim this technique as original work. It’s based on a root cause analysis technique called the “5 Whys” that is used in process improvement and the Toyota Production System. Read the rest of this entry »

I regularly read Stratfor’s Geopolitical Weekly. It’s a fascinating glimpse into the world of foreign policy risk management. Take this week’s issue for example. George Friedman analyzes the stalemate between the U.S. and Iran over Iran’s nuclear ambitions.

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In the article, George writes about an Iranian incursion into Iraqi territory (which I hadn’t even heard about) and how it relates to Iran’s strategy for dealing with the U.S. demand to abandon its nuclear program. He provides a detailed analysis of the situation, the risks to each country, the possible consequences and the potential options for how each country might respond to those risks. Does the process sound familiar? It should. It’s the risk management process we’ve been talking about – identify risks, evaluate risks and plan for risks.

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Every time I read one of Stratfor’s articles, I can’t help but wonder how many analysts are working for the U.S. government on these types of analyses. I’m sure the number would scare me. And then I think about how many analysts are working for the other major countries of the world. No doubt it is a very large number indeed – a good thing in my opinion. I shudder at the thought of politicians making world-changing decisions based on gut-feel.

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Risk management plays a critical role in global life and the interactions between countries. It should play a critical role in your business life and the interactions with your stakeholders (customers, employees, financiers, et al.). The process is exactly the same, only the sophistication of the evaluation techniques differ. The decisions the world’s politicians make could change the world for all of us. The decisions you make in your business are world-changing for you and your stakeholders (granted, a smaller scale, but pretty damn important to your stakeholders, don’t you think?). Shouldn’t those decisions get the benefit of the same risk management process?

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Do you see the parallel? Do you agree or disagree? I dare you to share your opinion….

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p.s. I promise to get back to the how-to’s of the risk management process – how to plan for your risks – next week.

I learned a lesson this week. I implemented new technologies (yeah, that’s right – plural) and suffered some embarrassment because I didn’t manage the risks well. Here’s what went down.. Read the rest of this entry »

I feel like I’m procrastinating. I finished my initial series on step one of the risk management process – identifying risk. Now the plan is to move into writing about step two – evaluating the risks. I’ll get there, but I’ve got one more topic I want to address. Let’s talk about the traits of world class business risk management…

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I’ve been thinking about these for about a week now.  The idea was triggered by a comment exchange with Kristen on my last post. We talked about “formal” process vs. “formalized” process. Kristen is absolutely correct that risk management needs to be formalized – meaning done in a proper and regular form. But I don’t think it needs to be “formal” – using the definition “stiffly ceremonious, burdensome or onerous”. I know it’s semantics, but the difference in perception will be the difference between effective execution and just going through the motions.

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That exchange about a specific trait got me thinking about what other traits would characterize world class business risk management.  Here’s what I’ve come up with.

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“How does somebody develop a passion for business risk management?”, one might ask. Well, let’s just say that I  learned its importance the hard (read “expensive”) way.

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My partner, Phil, and I started a retail liquor store in our hometown – a small town in eastern Iowa. We did our research. There was a  limited local supply – only the town’s grocery store offered a very sparse selection of liqour, beer and wine with zero customer service. Our interviews with competitors, potential customers and suppliers all indicated that there was a solid market for the business as long as the prices were reasonable. We wrote a kick-ass business plan (”Best I’ve ever read”, said the banker), got our financing, set up our space and opened the business.

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