Why Companies Try to Do Too Much

A key reason that organisations are too busy is that they do not know the difference between risk management and risk avoidance. Do you recognise the following scenario?
  1. A company has a stretching profit target which is significantly higher than its current projections.
  2. An internal project team is set up to identify quickly new areas for profit growth to fill the gap.
  3. A new, exciting opportunity for profit growth is identified which, if it delivers its potential, will significantly add to the bottom line.
  4. At a business planning session, a fear of not meeting the budget means that the benefits of the initiative are 'down-dialled' to something more reasonable.
  5. As a result, the investment required to deliver the project is reduced so that its cashflow profile is acceptable.
  6. The results fall slightly short of the budget, validating those who argued for a less aggressive benefits case.
The company still wishes to meet its stretching profit goal, so:
  1. An internal project team is set up to rapidly identify new profit growth ideas... And so on.
Risk management is focused on identifying and managing contingent and preventative actions that enable an organisation to deliver big benefits.

Risk avoidance is focused on ensuring there is no bad news. The problem with risk avoidance is that there is little chance of there being any good news, either.

I see the cycle of risk avoidance in various guises across many different organisations. As with any downward cycle, the place to intervene is where you can have the single biggest impact. In this case, that place is the business planning process.

By using trials, tests and prototypes and relentlessly ensuring that the initiative has a customer and business model that works, a company can ultimately make bigger leaps. It is a case of less haste, more speed.

Tesco's Express strategy took over 10 years and a tie-up with Esso to really take off.
I've said it before: you can't chase two hares.

Is your actively managing risks on the way, or is it avoiding risk, hedging its bets, generating excessive work and limiting its progress?

(Photo: Felix,CC2.0)