All businesses aspire to thrive and not strive all the time. The difference between Thriving and Striving is analogous with the terms Flourishing and Famishing.
“Let's Hope For The Best” abbreviated as LHFTB is a Syndrome; an unpronounced companion in Business; present in the scheme of things right from conception, planning to execution.
It is ubiquitous across all functions and all along the value chain of an organisation’s proposition. LHFTB syndrome’s presence in the portals of business demarcates the difference between a thriving business and a striving one.
LHFTBS (“S” for Syndrome has been newly added) exists often because of Optimism and even Wishful-thinking on the part of the promoters/founders. Optimism is a good habit nevertheless that disposition should be fortified by substantial fortification and contingency planning as well. Otherwise, the organisation can be equated to a car without brakes but with an optimistic driver who shamelessly expects no potholes or traffic or sharp bends ahead.
Risks, Risks and Risks!
It is found, based on Historical Data that many companies that fail, fail because of absence of Risk Management in their scheme of things and most companies (about 85%) fail because of Operational Risks that were lying undercover or went undetected because of LHFTBS.
This article tries to lay emphasis on highlighting easy to adopt Risk Management practices adoptable by a layman in order for organisations to be able to overcome risks without trading off returns.
It is evident from Statistics that reveal companies fail because of mismanagement of risks that had been inherent in their business ventures and also due to their misreading of pre-existing and imminent risks in the course of development life Cycle.
With a growing corpus of information and exposure on the part of existing customers, prospective customers, competitors.,etc, today’s businesses are confronting different types of risks at the most inopportune times more than ever in the past. This trend seems to be intensified due to disruptive developments owing to the era of Artificial Intelligence and Data.
Global Stage:
At the Global stage Risk Management stole the limelight particularly after the Energy giant Enron’s saga in the US in the early 2000s. The Enron episode saw millions of dollars gotten from life savings of ordinary Americans going down the drain. The causes for the failure of the Energy giant can be attributed to many factors but the effects it created in impoverishing the common man was universal. Interestingly, Enron Power did a Power Project at Dhabol, India that ended up in forking out comparatively higher costs for the end-consumers.
Several studies have been made on Managing Risks and the most popular forerunner was COSO: (Commision of Sponsoring Organisations) that came out with a compendium of best practices that aspired to formally integrate Risk Management into business practices for protecting shareholders’ investments. The concept of Enterprise-wide Risk Management (ERM) was coined somewhere then. Legislations were drawn to put in place a mandatory Risk Management function in Listed Limited Companies in the US followed by other developed nations in a bid to protect shareholders interests and also to augment transparency by keeping the concerned stakeholders informed of how their investments are being managed and safeguarded.
Other popular developments were the Sarabanes-Oxley Act called the SOX for organisations that use finance as the commodity of trade. Then comes Basel I, II,III and now IV that gives a comprehensive risk management standard for the Banking sector focusing both on Strategic and on operational aspects encompassing Internal Controls, Risk Management and Corporate Governance.
There was a time when Risk Management was thought to be of a firefighting mechanism, a knee-jerk reaction towards untoward developments in business landscape.
As focus in evaluating business performances turned Risk-centric, International standards organisation came out with a standard called the ISO:31000 (2018). The 2018 standard provides scope to take a look at Risk Management not only as a protective mechanism but also a value creating tool.
The ISO 31000 framework is fuelled by its generic principles that provide the guidelines high customisation and adoptation opportunities. Risk Management processes in ISO:31000 are aptly embedded in its framework making it a tool for effective implementation, for benchmarking and also for leveraging purposes.
The corporate world is slowly embracing a Risk-centric approach towards managing businesses than ever in the past. Though the prevalence is more in the banking and Financial sectors, the trend in adopting Risk Centric approach to non-financial businesses is on the rise.
Local Adaptation:
While the global prevalence of Risk Management practices in the Corporate landscape is quite vivid and evolving, the scene in the non-corporates, MSMEs, Startups leave much to be desired.
This also means that the volatility of these businesses are high thereby affecting the longevity and the objectivity of such enterprises.
To start with, non-corporate entities, in place of adopting comprehensive Risk Management practices in business can start to adopt some common-sensical but conventional Risk Management approaches.
Risk Management Tools:
A few of the common techniques that can be adopted by any layman with no exposure to Risk Management are the following:
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Playing the Devil's advocate by hypothesising scenarios (Scenario Planning) that if manifested can have potential impacts and as a result prepare for its eventuality at least conceptually by knowing what to look for and where to do so in case of a Risk Manifestation.
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Having a Risk Matrix prepared with the Occurrence of Risks (Frequency) and Severity of the impacts of such occurrences as X &Y axes respectively and map them by categorising them into Low, Medium, High and Critical Risks. Remedial action should be adopted to decrease criticality from High to Medium to Low for successful Risk Management.
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Deploying a systematic “Failure Mode Effect Analysis (FMEA)” by hypothesising a few negative eventualities and analysing each of those to in terms of Severity, Occurence and Detectability. This not only helps avoiding blindspots but also mainly helps to prioritise which Risks that need to be addressed first in a systematic manner than leaving it at that. As an outcome of this analysis each Risk is given a Risk Priority Number called RPN which is an indication of urgency with which the Risk with a RPN is to addressed. Higher the RPN, higher the risk and hence higher the urgency to treat the said risk.
Notes:Brainstorming by representatives or core members of each core function such as Design,Production, Sales etc for hypothesising will have a lot of positive impact by the way of integration and inclusivity while assigning key roles for the internal stakeholders for process management using the RACI Matrix will help effective delivery and deployment.
[RACI stands for Responsible, Accountable, Consultative, and Informed roles to be adhered to the personnel involved in the Risk Management Process.]
Without a conscious approach towards Risks that are undercover,inherent or imminent businesses live in constant danger of being endangered sooner or later and history has given enough evidence of this phenomenon.
In addition to the teaching standard Management concepts to students in Management schools, the concept of Enterprise Wide Risk Management should also be taught in retrospect.
In Business it is important knowing “What to do” but many a times it is important to understand “What not do” and that aspect in the thinking process can be brought about by developing a Risk Aptitude for Business Leaders.
Risk Aptitude is not about avoiding Risks but managing them without compromising value creation at the same time protecting enterprises from them.
In conclusion, Enterprises small or large must be aware of the presence of LHFTBS in their systems and should eliminate it as much as possible in order to be resilient, agile and successful during both the times of good or bad.
Majority of the Enterprises don't do anything about risks but live by the day with a hope blinded by LHFTBS.
It is time to start looking at LHFTBS seriously. Isn't it?!!
About the Author
Prof.(Dr) Narendranath Uppala is an exponent across multiple domains with profound international experience. The areas of expertise are Business, Business Communication, Enterprise-wide Risk Management, Academic Management, Leadership Coaching, Human Capital Development, Linguistics, Sales & Marketing and ERP. He is an International Speaker and speaks often on Business, Leadership, Emotional Intelligence, Transactional Analysis, Communication Strategies, Risk Management, Academic Research on many National and International forums.