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Risk-aware cost
cutting – how much risk to revenue does this cost cut create?
- The phone call
came in from the business line leader to the senior IT leader.
“I heard about your cut to support my business line. What does
this mean to me? What is the risk to my revenue?” The
cost cutting axe cannot fall in isolation. Risk to revenue
must also be considered (and some risk existed before the axe fell).
The need is to have a timely, yet meaningful, analysis of risk (in
both projects and operations) as part of cost cutting. The
more mature firms are also
working to build a meaningful view of risk into their
governance/oversight & investment select processes.
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Will the REAL
operational risk scenario analysis please stand up?
- This topic is
especially hot in the financial services environment. In many
industries, they have long become comfortable with scenario analysis
as a way to keep manufacturing plants, beer breweries, delivery
trucks and telecommunications networks running. Financial services
is a bit of an odd duck. For them, operational risk has been more
of a compliance-driven exercise – instead of a real physical world
view of real threats to real operations. This topic helps financial
services firms mature (and mature fast) to something that will
provide compliance AND real world protection, quality and
performance improvement benefits.
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Investment selection – what can risk tell me?
- In many firms,
investment selection and business case reviews go through a rather
perfunctory risk-return analysis. Lots of attention to the return
numbers, but little to risk. Often, the risk analysis is a few
bullets on a review page and a number for discounted cash flow
analysis taken from a periodic Finance report. When a project
doesn’t work out quite right, surprise, surprise. This presents
an excellent opportunity for CEOs & COOs to bring the CFO and CIO
together in a conversation with the applicable business line
leader(s). In a world of more highly automated and
integrated
business with more dependencies on IT, the CIO can provide more
meaningful risk assessment information. This helps the
decision making and oversight process gain a more robust view of risk,
enabling them to decide what to do before making an investment (and catch
problems in flight).
- In today's
environment, enterprises need to understand the full set of risks in
a project (from internal and external sources). This can also help
prioritize actions based on a) externally what is most needed to
survive and recover and b) internal gaps and needs.
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Scared of your governance? Get a health check to learn from
Goldilocks.
- Governance can be
a big word to some people. It’s kinda like management oversight.
In simple terms, it’s just about getting the right information to
the right people at the right time to make the right (or at least
better) decisions – with accountability. If you ask a human
resource professional, they might say something like “assigning
decision rights and accountability.”
- Governance starts
the first day a little shop owner hires the first manager. Now you
need management oversight. Governance always exists, the question is
just how efficient and effective it is.
- When I hear a
CEO, COO, CFO, CIO or other business leaders complain about the
governance process being too slow, analysis-to-paralysis or making
the wrong (or too political) decisions, then it’s time for a health
check. There are specific criteria that can be applied.
- The result is a
bit like the story of Goldilocks and the Three Bears. Rating
your health on several measures allows you to be "just right" on
measures such as the speed, level of information requirement and
people involved.
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