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 »

To be honest, I’ve debated about whether I should write about financial modeling. If you’re anything like my girlfriend Amy, the mere thought of financial modeling causes great anxiety and a profound desire to change the topic. And I’m pretty sure that a post on creating spreadsheet representations of your business may not go viral.

.

But the simple truth is that financial models are incredibly powerful tools and they’re not that hard to create. Models are also required to do certain types of risk evaluation (as I talk about here, here and here..) In fact, models of the financial kind can be kind of sexy – at least to the engineering types like me.

.

Well, now that I think about it the models really aren’t that sexy…did I mention that financial models are incredibly powerful? Read the rest of this entry »

Let’s drill down a bit into risk evaluation – step 2 in the risk management process. It’s standard practice to evaluate a risk or opportunity’s impact and rank it. You can rank the impact on a scale of 1 to 5, with 5 being the highest impact. Or you can rank the impact “high”, “medium”, or “low”. Or if you’re utilizing financial models you can calculate the risk’s impact and represent it in terms of your local currency.

.

Seems very straight forward, right? It is, but let’s take a step back and ask “Impact on what?” Read the rest of this entry »

Over the last couple of months, I’ve walked through the process for small business risk management with you. I thought it would be a good idea to capture all of the “how to” posts in one place.

.

Take a look at the compilation. My hope is that after reading all the posts below you have a general understanding of how to manage risks and opportunities for your small business. More importantly, I hope you see the benefit of incorporating formalized risk management into your daily business life.

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.

.

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.

.

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.

.

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?

.

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

.

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.

In our last conversation about risk management how-to’s, we finished up the discussion on evaluating risks. If you are able to utilize some sort of financial model to estimate risk impacts during your evaluation, you now have a rather lengthy list of risks with their probable impacts. That list can now be sorted.

.

How you sort the data depends on your desired approach. You can sort the data in order of probable impact. (This sort order will put the risks with the greatest potential impact to your business at the top of the list.) Or you can sort the data in order of probability of occurrence. (This sort order will put the risks that are most likely to occur at the top of the list.) Each sort order has its benefits. Personally, I look at the data in both ways. I obviously want to deal with the biggest impact risks. But I also want to deal with the most probable risks. Call it selfish, but I like the idea of reducing my future stress levels by eliminating the most probable risks.

.

So we’ve got a sorted list of risks. It’s probably somewhat overwhelming. There is no way you can deal with all of them. Where do you start? Which risks do you work on and which do you leave alone? That’s where the 80-20 rule comes in… Read the rest of this entry »

First off, let me apologize for the inconsistent posting lately. The holiday and vacation really hosed up my editorial calendar…
.
So let’s get back to evaluating risks. In the last post, I introduced you to the first two steps in risk evaluation: estimating probability and estimating potential impact. The last two steps are calculating probable impact and testing sensitivity. Read the rest of this entry »

In Part I of this series, I described the outcomes of risk evaluation. (It got a little long. Sorry.) In this post, let’s start digging into the individual steps.

.

What’s Involved in Evaluation?

Evaluating your identified risks involves 4 different activities. As you will see, it’s a lot easier to do the evaluation if you are working in a spreadsheet or some other computer based application. Here are the four steps, in order:

1. Estimating the probability of the risk occurring
2. Estimating the potential impact if the risk does occur
3. Calculating the “probable impact” of the risk
4. Evaluating your business’ sensitivity to the risk Read the rest of this entry »

As you recall, the 3 steps of business risk management are:

1. Identify your risks
2. Evaluate your risks
3. Plan for your risks

I’ve written a couple of posts (here and here) about the first step – identifying risks and creating your risk inventory (list of risks and opportunities). I’ve also written about the related topic of identifying your opportunities. It hasn’t been an exhaustive tutorial, but hopefully there has been enough information presented to help you gain a basic understanding of how to get started.

.

Now let’s start talking about evaluating the risks. (Note: Whenever I write “risks” in this post, I am also referring to opportunities. They are evaluated in exactly the same way.) In this post I’m going to describe what results from the risk evaluation exercise. The next post will get into the specific actions involved in the evaluation. Read the rest of this entry »