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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. 

 

Momentum Building Decision #17

Your expectations should be in

multiples and measurable. 

 

There are several factors that come into play when taking a calculated risk in business.  These factors help you decide to accept the risk or be more prepared when there isn’t a choice due to government regulatory compliance. 

 

 

Calculated RISKSM 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

We incorporated this Calculated RISKSM model while facilitating a session when working with a heavy construction client that needed to get all team members on board with the importance of documentation and embracing policies related to OSHA and EPA directives. However, this model can apply to any business where a risk is being taken to best determine what needs to be put in place to effectively mitigate and leverage the risk. This model not only helps you prepare your business for risk, but also helps you analyze a risk you are currently undertaking to better understand why it is not reaping the reward or return you had originally hoped it would reap. 

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. 

The negative indicators of both undocumented risk and it being a premium risk are listed below:

 

Undocumented Risk – Negative Indicators

Premium Risk – Negative Indicators

·        No clear expectations

·        No documented consequences

·        No procedures or policies

·        No documentation protocols

·        No communication protocols

·        No corrective or ongoing training

·        Disorganization within departments, teams, overall company

·        Reactive mode of operations

 

·        Inefficiencies throughout process

·        Higher costs being incurred

·        Lost work hours

·        Lost equipment usage 

·        Downtime - production being in limbo

·        Delays and missed deadlines

·        Lost opportunities

·        Substandard quality

·        Damaged reputation

 

 

If you are feeling any of these negative indicators, it is time to step up to the plate and go to bat, tackling each of these issues in a team effort to rectify and resolve. 

 

Bottom Line Rule #13

Ignoring what isn’t working 

is more costly than facing it.

 

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:

 

Documented Risk – Success Indicators

Accountable Risk – Success Indicators

·        Ongoing monitoring

·        Clear expectations and KPIs

·        Clear procedures

·        Clear protocols

·        Clear policies

·        Communication protocols

·        Documentation protocols

·        Easy access to information, forms, technology, decision makers, etc.

·        Proactive mode of operations

 

·        Ongoing benchmarks

·        Contingency planning

·        Team effectiveness

·        Seamless, efficient operations

·        Everyone accountable in roles

·        Marketplace preference

·        Competitive advantage

·        More profitable

·        More bankable

 

 

Bottom Line Rule #15

Replicating success guarantees success.

 

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.

 

In our Economic Vitality® model, the IQ of a business is pivotal to a company knowing where to start to engage its EQ (people) and VQ (ability to get things done efficiently and effectively). The two factors that cause businesses’ inability to effectively manage risk are a lack of understanding of strategic due diligence and business complexities that can drive up costs and drive down profits. Capitalization, regulatory compliance, supply chain, economic impacts, and competitive forces all play a role in a company’s ability to take calculated risks with confidence – the key word being calculated. 

 

Yours in economic vitality,

 

P.S. A shout out to Goodwill Industries of Southern Piedmont’s Trade School in Charlotte, NC, and Program Manager, Chris Sullivan, for understanding that soft skills including avoiding assumptions, understanding social cues, conflict resolution, building rapport, active listening, professional assertiveness with self control, and overall effective verbal, written and electronic communication are just as essential in training as the technical skills! They are preparing the next generation of skilled trades to lead the construction industry to even greater heights! In another region of the country? Check out Goodwill Industries in your area to see if they have a trades training program. 

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