Identifying Operational Risk
I
recently read an article outlining the top 10 operational
risks for 2013. Some were what you might
expect (fraud, political intervention to sort out Europe’s problems), others,
not so much (epidemic disease). The
latest – contamination of beef products with horsemeat – was nowhere to be
found.
Basel II defines operational risk as “The risk of loss
resulting from failed or inadequate people, systems, processes or external
errors”. Back in 2004, they identified 7
risks that could “hit” the financial services sector:
1.
Internal Fraud
2.
External Fraud
3.
Employment Practices and Workplace Safety
4.
Clients, Products and Business Practices
5.
Execution, Delivery and Process Management
6.
Business Disruption and System Failure
7.
Damage to Physical Assets
Although designed for the financial services industry, these
could apply to any business. Look
through any international newspaper on any day and you’ll find 4-5 instances of
one/more of the above impacting an organisation. The present beef/horsemeat scare is a current
example. Looking at the risks above,
this could come under “External Fraud” (if the action was deliberate),
“Clients, Products and Business Practices” (failure to check suppliers and
their product) or “Execution, Delivery and Process Management” (supplier
failure).
The damage to various supermarkets’ “names” has been clear
for all to see. As investigations
progress, it looks like it’s the end suppliers who are the cause.
Risk management is about looking forward as well as back, outward as well as inward. You look back at your own organisation or other
similar ones to see what events have caused your business or others problems in
the past. You look forward to assess what might cause your business a problem in the
future, what the impact might be (in
terms of cost, litigation, life and other factors).
Impacts can be:
·
Massive
·
Major
·
Moderate
·
Minor
·
Minuscule
Next, think about the likelihood
of the event happening. Is it:
·
Highly Likely?
·
Probable?
·
May Occur In Time?
·
Unlikely?
The descriptions you decide on may be different/ include
more than 4 levels. They should include
at one end the “highly likely”/”almost certain” extreme and the
“unlikely/impossible” at the other.
Once you’ve decided on the impact and likelihood of
an event happening, you then work out how critical
it is to your organisation. For
example, a highly likely event with massive impact on your organisation is
likely to be extremely critical to
your organisation’s ability to survive and will consume massive amounts of
time, energy and money to resolve.
Now, look outward: apply this other
organisations on which you depend.
For example, the computer industry relies on factories in Bangkok to
manufacture Hard Disk Drives (HDDs). In 2012
heavy flooding meant that factories had to close PC manufacturers suddenly
found that they had a problem. The 2011 tsunami in Japan caused problems for the
auto industry. Supermarkets have long
supply chains for their goods, as the horsemeat saga has shown.
The Bangkok and Japan examples concern very rare events known
as “Black Swan” events because they are almost impossible to predict. However, if you know that a factory is
located in a flood plain, you know that it’s more likely to see floods
(“probable” or “highly likely” depending on weather patterns).
More “highly likely” events are suppliers’ vehicles breaking
down, strikes, equipment malfunctions or employees going ill at certain times
of year (e.g. the winter in the UK). As
pressure grows for suppliers to drop prices, is it more likely that they will
find devious ways to cut costs?
Once you’ve identified the criticality of an event occurring to you or to a key supplier, you
need to think how to manage the results of this happening. Your choices are:
Tolerate:
|
Accept that this may
happen. Have a plan to deal with it.
|
Terminate:
|
Don’t take the risk.
|
Transfer:
|
Pass it to someone else (insure
it/use a third party agent to take the risk).
|
Treatment:
|
Mitigate it internally or
externally.
|
You could have alternative suppliers so that you can switch
from one to the other. It may cost you
more, but better that than to see your reputation suffer due to your failure to
deliver. What you choose will depend on
your circumstances.
Finally, things change.
As time passes, what started off as “unlikely” may become “probable”. A simple example is driving a car; the older
the car and the longer the interval between services, the higher the chances of
it breaking down. Make sure you review
regularly to see which risks might change, which risks should be added and which
removed.
I have
spent more than half my life delivering change all over the world markets from
the most developed to “emerging” economies. With more than 20 years in the
world financial services industry running different service, operations and
lending businesses, I started my own Performance Management Consultancy and
work with individuals, small businesses, charities, quoted companies and
academic institutions across the world. An international speaker, trainer,
author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of
services. For strategic questions that
you should be asking yourself, follow me at @wkm610.
Labels: Crisis Management, Risk, Strategy
Successful “Cold Calling”
I’ve been watching a debate
on LinkedIn about “getting past” the PA to sell a product or service. PAs are
“gatekeepers” for their bosses and are there to ensure that they aren’t
distracted from running the business.
Cold sales calls are a distraction.
There were two sides: one that viewed the PA as a barrier or
obstacle; the other that viewed them as an ally to be won over, as someone who could
point you in the right direction. Which
side do you think would be more likely to “get past”?
Selling is about identifying,
understanding and then responding to a customer’s needs.
If your product/service doesn’t respond to those needs then no matter
how good it is, it won’t sell. The PA
will tell you politely (or firmly, depending on how “pushy” you are) that they
aren’t interested.
The problem is, your product may actually be right for the organisation, but you
haven’t taken the time to find out why.
When medieval armies wanted to take a castle, they could
either:
·
Storm it (at great cost in lives and equipment)
without any guarantee that they would be successful, OR:
·
Reconnoitre, identify weaknesses (problems),
identify opportunities, undermine the foundations, send in spies, win people
inside over and then enter with less/no resistance.
Getting in to see a prospective client is no different
(although I would avoid adopting a “siege mentality”). In my experience, you’re more likely to
progress if you follow a few simple steps:
Show interest in your
prospect (reconnoitre). They
have problems and need solutions. Your job is to find out what the problems
are. To do this, you need to:
Do your research (identify potential problems). It’s amazing how much information you can
find online. If it’s a small
organisation with a small internet profile, there may be ways of asking people
in the community, or even by acting as a “mystery shopper” (I’ve done this to
test a client’s ability to respond to customer enquiries).
Ask Questions (win people over/make allies). Questions form the basis of your
research. Make them a mixture of
“closed” (designed to elicit a “yes/no” response) and “open” questions
(designed to elicit longer, descriptive answers). Have your list of questions ready,
particularly if you’re meeting face-to-face.
Listen (win people over/make allies). Your prospect will tell you as much by what
they don’t say as by what they do
say. Listen more than you talk; when you
do talk, make sure that it’s to ask another question, clarify a response, or
show you understand. Give the person
time to talk. We recently decided not to use a particular estate agent to
sell our house because he wouldn’t stop talking. If that was how he treated us, what would he
do to potential buyers?
Win allies (establish trust).
People realise quickly that they’re being viewed as a potential
“target”. If they feel that this is how
you view them, can they really trust you?
Once you’ve done your research to identify your prospect’s
potential needs, call the PA, explain who you are and why you’re calling. Be brief,
be relevant, be to the point. No one likes a
waffler or time-waster. Have your “script” ready, but try not to sound like
you’re reading it. If they sound
interested or want to hear more, tell them.
Make sure that your message is strong.
Next, ask for their
help (people love being asked for help) to establish to whom your offering
is interesting and to whom you should speak (quite often, it may not be the GM
or CEO).
Expect to be asked, “Do you have a website?” or, “Can you
send something in writing?” Agree to do
this and ask if you can call once they’ve had time to look at your proposal,
brochure or website (say in 1 week). You
now have your “invitation to come in”.
It’s up to you to convince.
I have spent more than half my life
working in different world markets from the most developed to “emerging”
economies. With more than 20 years in the world financial services industry
running different service, operations and lending businesses, I started my own
Performance Management Consultancy and work with individuals, small businesses,
charities, quoted companies and academic institutions across the world. An
international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services. For strategic questions that you should be
asking yourself, follow me at @wkm610.Labels: Customer Care, Productivity, Selling
Why Are We Here? - Defining Your Mission
If performance is
about people and motivating them, one of the keys to this is that they
understand what the organisation’s vision and mission are. In other words, what
is the organisation about, and how does it go about achieving it? How is this vision and mission communicated,
and can people remember it and act on it?
I've seen a number of "Mission Statements" which
are impossible to grasp. They're too long, too complex or both. What they need
to encapsulate is what the organisation will focus on, how it will work and what
will guide decision-making. A Mission Statement might contain information such
as:
·
What drives business.
·
What results the organisation wants to achieve.
·
Who are the organisation's customers and what it
tarea to keep them satisfied (functionally and emotionally).
·
Other “stakeholders” (e.g. suppliers,
regulators, law enforcement, shareholders, buyers, local community).
Based on this, employees start to understand the actions, behaviours,
competencies and abilities needed.
Next, decide how important they are relative to each
other. Describe them. Review them regularly for continuing
relevance. They DO change…
How will you MEASURE the results of the actions, behaviours,
competencies and abilities you’ve identified?
What controls are needed to minimise abuse of the system?
Develop a range (7 gradings maximum) and describe what is
needed to score in each rating (these also need regular review).
Make sure it's concise – too often they are a pain for
users and reviewers – how many appraisals does HR actually read?
Train appraisers and appraisees in using the system, how it
gathers information, and the reliability of that information, so that
acceptance becomes second nature.
Above all: RECRUIT THE RIGHT PEOPLE. No point in appraising “duds” you will need:
·
Good Job Descriptions
·
Well-trained interviewers
·
Clearly targeted skill sets to look for
Make sure these are all in line with your mission statement, and you'll find life is much easier.
I have spent more than half my life working in different world markets from the most developed to “emerging”economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services. For strategic questions that you should
be asking yourself, follow me at @wkm610.
Labels: Career, Productivity, Strategy, Teamwork
