Calculated Risk: Aligning Accountability, Productivity, and Profitability

Over 40 years working with a variety of industries, we have had the pleasure of strategically advising numerous businesses where government regulatory factors and/or the nature of the industry dictated an everyday management of risk. Whether it was a financial services firm or a manufacturing or construction company, risk management was key to the company’s ongoing ability to grow and thrive.

One of the challenges every business experiences is getting team members and processes in alignment to embrace and mitigate risk. Whether it is determined to be worthy and necessary for providing service offerings or to realize desired outcomes, a risk becomes more calculated when minimizing it can be monitored and measured every step of the way. 

Calculated RISK^SM Factors

• Documentation Needed
• Policies and Procedures Needed
• Expectations and Consequences
• Best Practice Protocols
• Training and Compliance
• Overall Organizational Impact /Productivity
• Overall Financial Impact/Profitability

      ROI = Impact + Strategy + KPIs

1.Undocumented Risk = Premium Risk: The lower level of this model is where you don’t want to be in business.  When documentation is not a part of your everyday way of doing business, you are setting your business and your team members up for failure, plain and simple. With this failure comes a premium risk that could have been mitigated through documentation, policies, procedures, protocols, and training. 

2. Documented Risk = Accountable Risk: When it comes to documentation, it cannot be overemphasized enough. A business that considers communications and documentation pivotal to deliverable excellence is a company positioned for growth and preference. Every aspect of the business to drive replicable success is documented and communications is considered paramount to being not only proactive, but also more collaborative and in-the-know. Access to information is seamless as well as access to any forms, templates, or programs necessary to drive execution effortlessly. 

The success indicators that the risk can reap higher productivity and profitability are below:

3. Training = Compliance: In many industries the word compliance is an F-word, riddled with eye rolling, irritation, feelings of being limited or controlled, and the list goes on. Specifically in industries where compliance is just a part of doing and conducting business, this negative attitude is because leadership does a poor job of inspiring team members to embrace compliance as an opportunity to excel. Compliance is dictated instead of being strategically embraced for team development and quality execution.

The key to compliance is in training – ongoing training. If documentation is not being completed properly. Training. If a step is being regularly missed. Training. If paperwork is incomplete or not clear. Training. If there is an unclear understanding of why a policy or protocol is in place. Training.

In an emerging leader training for this heavy construction company, I shared the difference between TLC, CYA, and QC.  The discussion was around engaging the team in understanding the true value of near-miss reporting which was keeping team members safe and minimizing accidents and incidents that could put coworkers in harm’s way. With TLC which many of us relate to “tender loving care,” the discussion was around not reporting near misses because of concern over a well-liked coworker involved in the near miss being called out and not wanting to get a co-worker in trouble. With regard to the CYA, there was concern over a team member not being forthright in all the facts related to a near-miss that involved that team member to deflect any negative repercussions. In both cases, the ultimate goal of reducing incidents for higher levels of safety for everyone was not the focus. We then had a discussion around QC as it related to taking quality care of everyone in the company and quality control in how everyone delivers the end product.  QC is the ultimate goal and focus.

Bottom Line Rule #18
Training should be an ongoing quality
control and value enhancing initiative. 

4. Compliance = Productivity: In the heavy construction firm, there was an issue with completion of paperwork and documentation of near-miss reporting and incident reporting. Supervisors viewed the paperwork as a time waster when they would rather be out in the field, and project managers were just policing and not really engaging in the overall process. We took a deeper dive into the goal of Net Zero Incidents to make this something everyone could embrace in a meaningful way.

Read this Forbes article I wrote on 5 Ways to Get Everyone to Embrace Company Goals for added insights.  What is important to remember is that when something is dictated to someone, they are less likely to embrace it and take ownership of it. When something is communicated with a focus on building understanding, relevancy and meaning behind it, it is then embraced with team and self-accountability. Getting at the why behind everything you are doing and the ultimate outcomes that can be reaped is a game changer for most businesses. The end result is a highly productive team that gets it, truly gets it. 

Bottom Line Rule #27

It’s not where they work, 

it’s why they work.

5. Financial Impact = Profitability: A calculated risk should ultimately reap a financial impact that improves or increases profits for the business. A profitable business is a more valuable business. When being brought in to work with a paper rolls manufacturer, we found that a part of the reason for their plummeting profits was in taking the risk of a $1 million contract that looked good on the sales revenue side but, in reality, had a negative net profit. Yes, this happened.

Had they truly analyzed the opportunity beyond the total revenue, they would not have agreed to the contract in the first place. They reacted to the big contract number instead of proactively assessing its true value and worth to the company in the short term and long term. 

Fortunately, through our ProfitSizing® analysis of their overall offerings, market segments. And geographic pockets of opportunity, they were able to offset this loss capturing more profitable segments and leveraging their more profitable offerings. And when the money-losing contract came up for renewal, the company opted not to bid again. 

Another client in the property maintenance business for large-scale retailers and banks, found that they were losing money in the Sallie Mae foreclosure contract work during the Great Recession years. It seemed like a lucrative opportunity, but the initial execution was the problem. Once they established a company protocol, standards, and clear expectations for these properties, this became among the more profitable offerings of their business. Their willingness to go after a market all others saw as too risky and low margin was an opportunity in disguise with the right internal pieces in place. 

Momentum Building Decision #15

It’s not just about sales; 

it’s having the capacity to execute.