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What's the Likelihood?

According to academic research, an adult makes somewhere between 23,000 and 35,000 decisions a day. Many of these decisions are made subconsciously. According to researchers at Cornell University we make 226.7 decisions each day on just food alone.

Some decisions are relatively insignificant such as what to have for breakfast or what clothes to wear, and are typically made on an individual basis requiring little thought. Others are more important, requiring a much more refined analysis and quite often involving group consensus in order to decide on the appropriate course of action.

Meanwhile, the world of business is becoming more complex. Rapid changes in technology, the political and regulatory environment, combined with increased competition and litigation burdens, is putting more pressure than ever on organizations to make the best decisions. Uncertainty grows right along with business complexity.

Imagine living in a world of certainty. You would know in advance what schools you...

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The Failure of Risk Management

 

The results of a recent survey by North Carolina State University and the American Institute of Certified Public Accountants reminded me of the slow progress being made by organizations in implementing risk management.  Titled “The State of Risk Oversight”, here are just a few of the findings from the survey.

  • Most respondents (60%) believe the volume and complexity of risks is increasing extensively over time.
  • Twenty-two percent of respondents describe their risk management as “mature” or “robust” with the perceived level of maturity declining over the past two years.
  • Less than 20% of organizations view their risk management process as providing important strategic advantage.

Why do most organizations see risks increasing, yet less than a quarter have mature programs, with even fewer considering them as providing value.   I believe the problem is threefold.

First, the perception of risk management is often viewed in the outdated...

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Are you using this secret method to make better decisions that get better results?

 

How do you make the best-informed decisions that support the achievement of your objectives?  There is a systematic way to anticipate threats and identify opportunities, and it provides valuable information that leads to implementing effective action plans.

After you have clearly articulated your objectives, including the expected outcomes and how they will be measured, the next step is to contemplate the external and environment in which you seek to achieve those objectives.  I refer to it as “reflect” in the managing uncertainty system.

The external environment may include the factors such as: political, economic, socio-cultural, technological, legal, and the competitive environment.  These are generally not within your control.

The internal environment may include: governance, organizational structure, roles and accountabilities, policies, objectives, capabilities understood in terms of resources and knowledge, information systems and flows,...

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In search of opportunity

 

As management guru Peter Drucker said, “Results are obtained by exploiting opportunities, not by solving problems.  All one can hope to get by solving a problem is to restore normality.  All one can hope, at best, is to eliminate a restriction on the compacity of the business to obtain results.  The results themselves must come from the exploitation of opportunities.”

This is one of the reasons why I don’t like the definition of the word risk, especially when used in the phrase “risk management.”  Look it up in any English dictionary and you will see risk defined as the chance or probability of loss, harm, or injury – all of which are negative outcomes, and fit into the problem category.

If we are going to protect and create value, we must use a different definition of risk.  The one I like is “the effect of uncertainty on objectives.”  An effect can be positive or negative, and when it is...

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How to get a great return on investment

 

Fundamentally, every organization is a system: a collection of processes that, together, reliably produces an intended result.  Systems allow you to spend time focusing on actions that will ensure you can fulfill all the tasks required to achieve the organizations objectives.

Systems are comprised of processes.  As W. Edwards Deming, considered by many to be the father of the quality management movement, said: “If you can’t describe what you are doing as a process, you don’t know what you’re doing.”  That’s a pretty blunt statement, but quite true when you think about it.

Processes include written policies and procedures that have been established for the purpose of ensuring the desired outcome from a given business operation.  This documentation forms the foundation of an effective process, which in turn supports the overall management system.

Properly designed, systems keep everyone on the same page, help avoid bottlenecks,...

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A Black Swan Sighting

The recent wildfires in wine country remind me of a book by author Nassim Taleb.  The book’s title, The Black Swan, comes from a period in history when it was only thought that there were white swans.  That was until early travelers discovered black swans on another continent, something they never thought possible.  The book’s subtitle, The Impact of the Highly Improbable, foretells its underlying theme, which is how we can be fooled by randomness.

Taleb describes a black swan as a highly improbable event with three principal characteristics:  it is unpredictable; it carries a massive impact; and after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was.  He cites the success of Google as a black swan, as well as 9/11.  The wildfires were not predicted, they had a massive impact, and now lawyers are pointing fingers and politicians are creating new legislation.  After the fact,...

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Biggest Risk

 

It's been said that the biggest risk is not managing risk, however I am not sure that is true. We manage risk every day, either consciously or not, so the real issue is how effective we are at doing so. In this short video I share five potential flaws in the way we manage risk.

Effective risk management requires strong and sustained commitment by management of the organization. The “tone from the top” encourages risk awareness across the organization and staff to be accountable for their actions. Strong leadership utilizes the knowledge of all staff and team members in determining controls before risks occur.

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Reflections

In his book, The Fifth Discipline: The Art & Practice of the Learning Organization, Author Peter Senge talks about the importance of developing core learning capabilities, one of which is reflective conversation.  Skills of reflection concern slowing down our thinking processes so that we can become more aware of how we form mental models and the way they influence our actions.

He goes on to say that mental models are deeply ingrained assumptions, generalizations, or even pictures or images that influence how we understand the world and how we take action.  Very often, we are not consciously aware of our mental models or the effects they have on our behavior.  For example, we may notice that a co-worker dresses elegantly, and say to ourselves, “She’s a country club person.”  About someone who dresses shabbily, we may feel, “He doesn’t care about what others think.”  Mental models about what can or cannot be done in...

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Setting Objectives

Stephen Covey, in his book The 8th Habit, describes a poll of 23,000 employees drawn from a number of companies and industries. This poll revealed some startling information about employee understanding of organization’s objectives.

·         Only 37% said they have a clear understanding of what their organization is trying to achieve and why.

·         Only one in five was enthusiastic about their team’s and their organization’s goals.

·         Only one in five said they had a clear “line of sight” between their tasks and their team’s and organization’s goals.

·         Only 15% felt that their organization fully enables them to execute   key goals.

·         Only 20% fully trusted the organization...

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Five Conversations

We can all recall a stimulating conversation with someone that turned into a brainstorming session with a great exchange of ideas.  As the conversation continued, and the ideas built upon one another, it became quite clear as to the best course of action to take going forward.

Now imagine your management team engaged in a structured series of five conversations that ultimately allows them to make the best informed decisions that support the achievement of your organizations objectives.  Let’s have a look at what those five conversations might include.

Where do we want to go?

Value creation starts with an objective-centric conversation.  This would include clearly defining your objectives, including the desired outcomes and how they will be measured.  This may include your strategic, operational and financial objectives, and provides the focus as you progress through the remaining conversations.

What is the current environment?

Understanding the internal and...

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