Happy St. Patrick's Day! In Irish folklore, a leprechaun is a type of fairy usually depicted as a little bearded man, wearing a coat and hat, who partakes in mischief.
They are solitary creatures who spend their time making and mending shoes and have a hidden pot of gold at the end of the rainbow. If captured by a human, the leprechaun has the magical power to grant three wishes in exchange for their freedom. So if you do catch one, you could inherit some Irish luck and avoid the chance of your company having problems.
But chances of this happening are low, so you are probably better off applying enterprise risk management techniques to your business. Managing enterprise risks is a continual balance between reaching out for opportunities while mitigating threats to the organization.
Achieving the Right Balance
Some organizations steer too far toward reaching for opportunities, putting financial stability at risk. Others go the other way, retreating so far from real and perceived threats as to cripple the organization's ability to grow and increase revenue streams. Where is that coveted middle ground? How can your organization accept a healthy level of risk and seize those opportunities, without allowing the threats to overtake the company?
Enterprise risk management (ERM), a close cousin to enterprise performance management (EPM), includes the methods and processes used by organizations to manage risks and seize opportunities related to the achievement of their objectives. ERM provides a framework for risk management, which typically involves identifying particular events or circumstances relevant to the organization's objectives (risks and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring progress.
By identifying and proactively addressing risks and opportunities, business enterprises protect and create value for their stakeholders, including owners, employees, customers, regulators, and society overall.
Determine Whether Accepting the Risk Could Garner You a Competitive Advantage
If you take the risk and it turns out nicely, what business advantage or competitive edge will you gain over your competition?
If you take a risk and it pays off, what competitive advantage will you stand to gain? An example of this is assessing the risk involved in expanding your business to a new region or country. Is the market already saturated with a competitor? What can you offer target customers to lure them away from the competitor and into your camp? What if you can't manage to get them to convert? You could lose competitive advantage if the move isn't right. EPM software allows you to create different model scenarios and evaluate your options based on each potential situation. This can be an invaluable tool when weighing your ability to compete in a new market where another competitor is strong.
Decide if You Can Accept a Small Part of the Risk Instead of the Whole Thing
Is it possible to take the risk on as a small-scale project instead of accepting the risk in its entirety? Sometimes risks don't present themselves as all-or-nothing deals. When possible, see if you can accept the risk as a small side project. If and when it proves its worth, you can consider expanding the project. For example, moving into a vastly different market like Asia doesn't have to all-in or all-out. You can often take on a small project, test the waters in the new market, and make adjustments as your KPI results come in. If things are promising, forge ahead! If things aren't panning out so well, ease out and be glad you took a small risk rather than a great one. Again, EPM software is highly valuable in monitoring those KPIs and allowing you to make adjustments and corrections on the fly.
Don't Look at Risk Assessment as a 'One and Done' Thing
At each step of the project, stop and assess how things are going. Use the lessons you learn in one area to make better decisions about future risks and opportunities.
Risk assessment isn't something you do once before deciding to accept the risk, and then never thinking about again. Examine the risk at each key point along the way. Monitor how the project is going, analyze the data, and issue reports stating how the risk is playing out. Not only does this help you manage this particular risk, it also teaches the organization well so that future risk assessment can be done with more insight and information.
Even when a risk is taken and things don't turn out well, you have learned lessons that are valuable to the organization. For instance, when you roll out a new product, consider a small test market before a grand national rollout. Many companies have had success with these limited product releases, and many more have avoided serious backlash from products that weren't received so well after all. Knowing how much to risk is a huge part of risk management.
Both growth and innovation are impossible without taking on a certain amount of risk. You just have to determine what risks are worth taking and which are better left alone. Or you can count on inheriting some Irish luck from a leprechaun.
What does it look like when risk taking is done right? Learn for yourself in this white paper "Predictability Through Planning Agility." It's your free St. Patrick's Day gift from Host Analytics.