Posts Tagged ‘risk’

It’s that time again, when all the predictions and forecasts of gloom and doom—or better times ahead—come at us. In the interest of jumping on that gravy train, I make only one prediction for 2017:

There will be predictions, and most of them will be wrong.

A few will be somewhat right, usually something self-evident and not particularly informative: “The stock market will fluctuate.” Well, thanks for that…

Some will be a bit off the mark, but most will be completely wrong; a few will be wildly off the mark. This will lead many media commentators to lament in June that such and such never could have been predicted.

There are fields where there are reasonably accurate predictions, but they tend to be in the sciences. This is because predictions in physics, chemistry, meteorology, etc. are based on empirically-based, quantitative models, and they are put through a process of peer review to ascertain their effectiveness.

The question, then, is what predictions outside of pure sciences can be trusted. Not many, but there are still some precious metals in the pile of slag. You must make your own assessments as these forecasts come out and judge how much credence to lend them. Here are my six simple rules for evaluating the credibility of predictions and the prognosticators making them.

Rule 1—Consider the source (Expertise Rule). Do they have genuine expertise in the subject matter? Are they disinterested parties or participants in the predicted process? In other words, do they have a stake in the outcome? Psychology and common sense dictate that interested parties are seldom as objective as they claim.

Rule 2—Identify the theory or model underlying the prediction (Model Rule). Do they generate predictions based on an explicit explanatory model? Or, do they just seem to wing it, based on intuition and past results?

Rule 3—Determine how the model was developed and tested (Cherry-Picking Rule). Was the explanatory model created through purely statistical legerdemain? In other words, did they analyze a bucket load of data and then look for patterns, or did they instead develop a theoretical model and then see how the data conformed to their predictions. The first approach is called cherry picking; it’s like shooting at the wall and then drawing a target around the closest bunch of bullet-holes. The second approach is the only truly valid one.

Rule 4—Look at the data (Secret Knowledge Rule). Do they provide their inputs and data, or otherwise reveal what and how empirical information was used in formulating their predictions? If they don’t, then how can their models be validated and tested?

Rule 5—Consider the timeframe (Horizon Rule). Some predictions turn out reasonably accurate as to amplitude or outcome. They just never specify WHEN they will come to fruition. I predict that the Dow will hit 25,000… eventually. Makes a big difference.

Rule 6—Compare past predictions to actual results (Performance Rule). This one is self-evident, but the usual case is that past predictions are quickly forgotten in the rush to generate and consume new ones.

You’ll notice that none of these rules gives you an exact answer. That’s because there rarely IS an exact answer, except in tightly constrained situations. Business, finance, economics, politics, sports, and military strategy are all highly complex and somewhat chaotic. Beware the prognosticators who claim inerrant accuracy and foresight.

We may not know precisely what will happen in the future, but we can be better prepared.

That’s why we all need the readiness principles and prudential approaches that I write, educate, and consult on.

Here are some of my other thoughts on these matters:

What Goes Up: The S-Curve and its Many Applications

Trend or Bandwagon?

Beware the Prognosticators

Let’s Have Some Perspective

Stop Predicting, Start Experimenting

Surprised by the Normal

Remember Richard’s Business Readiness Process in 2017!
  1. Ensure vigilance through situational awareness.
  2. Do preliminary assessment of tasks and time.
  3. Activate organization or team.
  4. Conduct reconnaissance.
  5. Do detailed situational estimate.
  6. Conduct wargame and decide on optimal course(s) of action.
  7. Perform risk management and contingency planning.
  8. Communicate plan and issue direction.
  9. Build organizational robustness.
  10. Ensure operational continuity.
  11. Lead and control execution.
  12. Assess performance.

Call me if you would like a 90-minute Business Readiness Briefing in early 2017!

My name is Richard Martin and I’m an expert on applying readiness principles to position companies and leaders to grow and thrive by shaping and exploiting change and opportunity, instead of just passively succumbing to uncertainty and risk.

© 2017 Alcera Consulting Inc. This article may be used for non-commercial use with proper attribution.

risk-vs-reward

Step 7: Perform Risk Management and Contingency Plannin

Why analyze and manage risk? 

  • It exists whether we recognize it or not.
  • We are better to identify risks consciously and determine how best to accept and/or manage them.
  • That way, we can decide how much risk we wish to take on and the nature of these risks.
  • We should only take on risks willingly in exchange for potential rewards: risk ≈ reward.

What is risk?

  • Risk is the potential for loss due to uncertainty. All risks are quantifiable as the product of probability of occurrence and potential harmful consequences (R=PxC). There are generic risks, such as natural or manmade disasters, and there are inherent risks, which are specific to each course of action. Both types must be identified, evaluated, and actively managed.
  • There are two focal points of risk management: prevention and mitigation.

Risk Prevention

Prevention seeks to reduce the probability of harmful events before they occur. Accepting risks without concomitant rewards is reckless and irresponsible. Such risks can actually be considered as hazards and should be eliminated through careful planning.

Risk Mitigation

  • The second focus of risk management is mitigation, which comes into play if prevention fails and a harmful event actually occurs. Mitigation entails responding in a timely and effective manner to the event so as to minimize its evolution and impact, taking action to contain its harmful side-effects, and implementing recovery and continuity measures.

Contingency Planning

  • One part of risk mitigation involves contingency planning, so as to deal with harmful events and threats. However, contingency planning can also be used to prepare for exploitation of opportunities arising from chance or the effectiveness of our own plans and actions. In sum, contingency planning is about readiness for both positive and negative outcomes.

total-risk-strategy

Recap of Business Readiness Process

  1. Ensure vigilance through situational awareness.
  2. Do preliminary assessment of tasks and time.
  3. Activate organization or team.
  4. Conduct reconnaissance.
  5. Do detailed situational estimate.
  6. Conduct wargame and decide on optimal course(s) of action.
  7. Perform risk management and contingency planning.
  8. Communicate plan and issue direction.
  9. Build organizational robustness.
  10. Ensure operational continuity.
  11. Lead and control execution.
  12. Assess performance.

 

 

Step 4: Conduct Reconnaissance

This diagram depicts the elements of military reconnaissance and, by analogy, those of business reconnaissance. The most important thing to understand is that reconnaissance must be mission driven.

The aim of reconnaissance is to generate mission and goal focused intelligence. In other words, you don’t just go off willy nilly trying to figure out what is happening and what the conditions you’re likely to face are.

You must start with you mission, which tells you the effect you want to create. You then develop a general idea of the courses of action you have open, as well as likely responses by your competitors, opponents, clients, suppliers, distributors, and other potential influencing actors. This gives you the proper framework for assessing the environment and finding competitive gaps that can be exploited for success. You can also potentially shape your competitive battle space when you know what it consists of.

The second diagram (below) shows how this relates to our eventual planning and decision-making. We’re not just out there looking around. We’re trying to seize opportunities, notice things others haven’t noticed, and, what’s often forgotten or avoided, protecting ourselves from the downside.

 

Business Readiness Process (BRP)
1.     Ensure vigilance through situational awareness.
2.     Do preliminary assessment of tasks and time.
3.     Activate organization or team.
4.   Conduct reconnaissance.
5.     Do detailed situational estimate.
6.     Conduct wargame and decide on optimal course(s) of action.
7.     Perform risk management and contingency planning.
8.     Communicate plan and issue direction.
9.     Build organizational robustness.
10.   Ensure operational continuity.
11.   Lead and control execution.
12.   Assess performance.

 

Did you know that an infantry battalion only needs about 3 to 4 hours of prep and planning time to be battle ready? What are you waiting for to get the same benefits for your outfit?

Feel free to contact me at any time to discuss your objectives and needs.

And remember… STAND TO!!!

My name is Richard Martin and I’m an expert on applying readiness principles to position companies and leaders to grow and thrive by shaping and exploiting change and opportunity, instead of just passively succumbing to uncertainty and risk.

© 2016 Alcera Consulting Inc. This article may be used for non-commercial use with proper attribution.

Monday STAND TO!

By Richard Martin, Expert in Business Readiness and Exploiting Change

“Stand to!” is the order given to put troops in a high state of readiness. It comes from the trenches of the First World War, when forces on both sides would stand ready for action at the parapets just before dawn and just after dusk in case of surprise enemy attack. The practice continues to this day, although adapted to the realities of modern warfare and conflict. The order to “stand to!” encapsulates the whole theory and practice of military readiness, which is about awareness, anticipation, and preparation before, during, and after operations, in war and in peace.

It’s time for a change. My book Brilliant Manoeuvres came out in the fall of 2012 and since then I’ve been issuing Brilliant Manoeuvres just about every Monday morning to help, you, my faithful readers manoeuvre successfully to achieve outstanding growth in your business and leadership capacity.

I’ve decided to change my focus to generating and building your business readiness. This is also in line with my latest writing project, tentatively titled, Stand To! Military Readiness Principles to Thrive in Business and Propel Your Growth.

Why is military readiness relevant for business? In my practice as a business consultant, I’ve noticed that many, if not most, executives and entrepreneurs are well prepared to fight the last war, but not well positioned to fight the current one, much less the next one. They frequently have limited situational awareness, poorly adapted decision-making, planning, and communication processes, and are sluggish in leveraging opportunities, responding to threats, and mitigating risks. After all, change is permanent; the real question is whether a business can exploit it and shape it to its advantage, whether it is positioned to seize and maintain the initiative or to reel from successive blows of evolving markets and competition.

From Awareness to Robustness–What Is Business Readiness?

Business readiness is the capacity to exploit change by maximizing opportunities and minimizing risks and threats in order to grow and thrive.

The first level of business readiness is situational awareness, which I define as the ability to discern an organizational shock or environmental change that may lead to crisis, and to take a measured approach to avoiding, leveraging, or resolving it.

The second level of business readiness is preparedness. A well prepared organization is one which has identified a number of risks and threats beforehand and has taken measures to mitigate or even eliminate some of these through active prevention. Many organizations have contingency plans to deal with various disasters, emergencies, and crises due to technological or natural hazards. The quintessential ready organization is the fire department, which has a well-defined set of threats and risks and is structured, trained, and equipped exactly for that purpose. There are others, however, such as airports, hospitals and other health-care facilities, law enforcement agencies, etc. Firms such as builders, manufacturers and mining companies also must have plans and procedures in place to deal with accidents, technological hazards, competition, and socio-political opposition.

The highest level of business readiness is robustness, which I define as the ability to absorb change and shocks by shaping the environment and leveraging the inevitable risks, threats, and uncertainty. Not many organizations operate at this level of readiness. Military forces come to mind as singularly robust and they can be used in a number of areas beyond combat because of their built in resiliency, flexibility, and access to logistical and human resources anywhere, at any time. While they can provide a useful example of what is possible, the reality is that most organizations are currently not very capable in this regard.

What all of these levels have in common is a certain level of resiliency, the ability to bounce back from adversity and shock and to continue functioning adequately. Further to that, however, situational awarenesspreparedness, and robustness are functions of increasing flexibilityredundancy, risk-taking, resourcefulness, and individual/collective initiative. All of these capabilities can be built into an organization and inculcated into its leadership and employees.

I hope you’ll join me as I develop this theme over the coming weeks and months. Feel free to contact me at any time with suggestions, questions, or comments.

And remember… STAND TO!!!

© 2016 Richard Martin. Reproduction, forwarding, and quotes are permitted with proper attribution.

Everything has advantages and disadvantages, and no amount of hype and fashion-mania can eliminate that basic law of nature.

I’ve been reading (and rereading) books by Vaclav Smil. He’s a professor at University of Manitoba who is a world renowned expert on energy, energy flows, and modern industrial society. He analyzes claims about various industrial processes and energy conversions and uses in terms of their technicalities. More important, though, is that he highlights the advantages and disadvantages of each of these options and practices. There is no “perfect” energy conversion or industrial process. All we have are positive effects and negative effects, cost and benefits, opportunities and risks.

This resembles the way I was trained to develop and assess tactical, operational, and strategic plans and manoeuvres in the Army. You first must know what your realistic options are. Then you develop them sufficiently to identify key advantages and disadvantages, costs and benefits, and opportunities and risks. There is no free lunch, much less a perfect option or plan.

If someone comes along telling you they’ve got the perfect solution or a cost-free alternative, you’re better to treat them as a snake oil salesman, because what they’re selling is akin to a perpetual motion machine.

© 2016 Richard Martin. Reproduction and quotes are permitted with proper attribution.

We’ve been looking at the 6 steps in the simplified “battle procedure” for business. So far we’ve covered steps 1 and 2, respectively: warning and time estimate. This week we cover step 3, reconnaissance.

Reconnaissance is the act of seeking out new information or confirming existing assumptions and knowledge in order to decide on the best course of action for future operations. Reconnaissance is so valuable because it allows us to question the hypotheses that have guided us to that point. For instance, you may consider launching an attack on an enemy position by going through an unfamiliar area. However, you need to send scouts to confirm that the route provides good cover, is passable to your forces, and will give you the element of surprise. The last thing you want is to take a route to your objective and find upon doing so that it is impassable to tanks or you come under enemy ambush.

You can and must apply the same logic to your business strategies and tactical plans. Say you want to launch a product or service in new geographical market. It helps to scout out the terrain ahead of time to determine the following:

  • Are there competitors?
  • What do they offer?
  • What is the nature of buyers, their needs, their wants?
  • Are there government regulations you must be aware of?
  • Do you have the resources to establish a bridgehead in hostile territory?
  • Are there potential allies who can help you succeed in this terrain?
  • What is the weather (i.e. economic and social environment) like?
  • What are the threats and opportunities?

I’m never too busy to discuss your needs or those of anyone else you feel may benefit from meeting or talking to me. So feel free to contact me at any time! Ask me about my new “Battle Procedure Briefing” for business.

Richard Martin is a Master Strategist and Leadership Catalyst. Richard brings his military and business leadership and management experience to bear for executives and organizations seeking to radically improve performance, grow, and thrive in the face of rapid change, harsh competition, and increasing uncertainty.

© 2014 Richard Martin. Reproduction and quotes are permitted with proper attribution.

Now is the time to get ready for battle!

And you don’t have to go in blind. Why don’t you call on the best strategist to give you the edge you need?

Richard Martin served as an infantry officer for 21 years in the Canadian Army.

He is the expert in applying military wisdom and know-how to winning business and organizational battles.

Richard shows you how to apply the fundamental principles of military strategy and leadership: manoeuvre and discipline.

Richard will lead a real, honest to goodness BATTLE PROCEDURE BRIEFING for you and your team that will propel you to victory!

“Did you know that an infantry battalion only needs about 3 to 4 hours of prep and planning time to be battle ready? What are you waiting for to get the same benefits for your outfit?” – Richard Martin

Duration: 3 to 4 hours, at your location

Investment: variable depending on needs and objectives of client

Contact me right away to see if you have what it takes!

Richard Martin, The Leadership and Strategy Catalyst, Alcera Consulting Inc.

514 453-3993

Richard.Martin@alcera.ca

http://www.alcera.ca

Check out Richard on video: http://www.alcera.ca/en/videos-teleconferences.php

Richard Martin is the author of Brilliant Manoeuvres: How to Use Military Wisdom to Win Business Battles

Brilliant Manoeuvres is Sun Tzu’s Art of War combined with Drucker’s The Effective Executive.”

— Alan Weiss, PhD, Author of the bestselling Million Dollar Consulting

The agenda and content may vary according to the client’s objectives, Richard’s professional opinion and experience, or the exact nature of the situation under assessment. While the procedure is important, it is also critical that strategic and tactical conditions guide the process. Richard has the expertise and discipline to keep the team on track with a systematic approach.

Note: Battle-dress not required… 😉