Balancing Risk and the Bottom Line

“The sky is falling!” Chicken Little cried hysterically to the other barnyard animals. Convinced they faced an imminent and serious threat, they ran into the fox’s den for safety; they were never seen again. Chicken Little and friends ran from the presumed risk that the sky was falling, right into a catastrophic event — dinner chez the fox. There’s a lesson here, though perhaps different from the one we were taught as kids.

Risk is the possibility that something bad may happen. As managers, we operate in environments filled with risk. News agencies report terrorist threats, deadly viruses, computer hacking, dock strikes, currency downturns, plane crashes, factory fires, customer lawsuits and more. Managers have a responsibility to protect their employer’s corporate assets against an expansive variety of risks, often in largely unfamiliar environments. At the same time, we must grow the bottom line. Reducing exposure to risk costs money, but without risk there is no growth.

I don’t work in corporate security, but I’ve learned a few things about managing risk and responding once a catastrophic event occurs. I experienced the ’89 and 2010 earthquakes in San Francisco and Haiti; I weathered category 5 hurricanes in the Caribbean and massive flooding in Vietnam. I’ve had three bouts of malaria; traveled in horrifically unsafe taxis and planes; experienced one coup d’État, countless mortar attacks, and traveled during the epidemics of Avian Flu and SARS; I lost money in two overnight currency devaluations; and was a victim of high-stakes credit card fraud. I witnessed the carjacking of the vehicle next to mine and watched three large buildings burn to the ground. And I have repeatedly traveled where my fellow citizens and I were at risk of vicious criminal or terrorist attacks.

I’ve benefitted from corporate safeguards, and training in personal safety and emergency response. But I believe my most valuable tools are the cash in my pocket and the brain in my head. Of the two, cash runs out fast.

In today’s environment, how do you, as a manager, balance risk and the bottom line for your company and its personnel? Empowerment. It enables your organization to better plan and prepare, and it generates the mental agility and confidence to respond in a more timely and effective manner if and when a risk materializes.

In California, San Francisco’s fire department believes the “big quake” will occur. Recognizing no city has sufficient resources to care for everyone if a catastrophic event happens, they understand everyone needs to be prepared logistically and mentally to respond. The SFFD trains residents for Neighborhood Emergency Response Teams (NERTs). In my experience in Haiti’s earthquake, those who coped best after the quake were those who were empowered, either through prior experience or training. Corporate risk is not limited to physical catastrophes, but the idea remains the same. In business, initial losses will likely be lower and recovery faster (saving money and time) in the event of any unfortunate event, if we have empowered everyone to prepare and respond.

The common denominator in a 5-point plan
Most security experts propose some version of a five-point risk management plan: 1) identify; 2) plan; 3) prepare; 4) respond; and 5) recover. Most large corporations have done this to some degree. What role does empowerment play? It is the crucial common denominator that many overlook. Read on to see where empowerment fits.

Identify. When asked to what he attributes his hockey success, Wayne Gretsky famously said, “A good hockey player plays where the puck is. A great player plays where the puck is going to be.” Identify the source and likely severity of impact of potential risk-events. Risk comes from both predictable and unpredictable places and events, so it is important to cast a wide net. The matrix shown here starts the process. Within each cell, management must drill down to specific threats according to their own organization and operating environment(s).

What role does empowerment play here? Those who participate in identifying and assessing threats are better equipped to develop a sound prevention and response plan, and to think quickly and logically on their feet when a catastrophic event occurs. Think inclusively as you select personnel to assist.

Plan. Outline steps to minimize exposure to identified risks and to respond effectively if the risk-event occurs. Be detailed and specific, but build in flexibility and allow a variety of individuals to assume authority in case things don’t unfold quite as planned. Deputize personnel to take charge if normal decision-makers are incapacitated or out of reach. Share this plan widely, to the degree proprietary business practices and confidentiality allow, empowering anyone and everyone to step in and help without awaiting a green light if communications systems are compromised.

Prepare. Fear cripples but preparedness empowers. Prepare for generalities across a variety of events (e.g. loss of communications systems, damaged facilities and infrastructure). Crafting contingency plans, training personnel, and investing in some redundancy costs money but speeds your recovery, thereby reducing your overall loss. Encouraging personnel to take personal preparatory measures helps employees care for themselves and return to productive work more quickly after a damaging event. In short, preparation empowers individuals to adapt more quickly to a new operating reality, even if it doesn’t match exactly that which was foreseen.

Respond. When a risk-event occurs, mobilize. Take stock of the situation (account for personnel, communications systems, hard assets, infrastructure) and launch your response plan. Empower remote personnel to mobilize on their own if communications systems are down; this will save valuable time — helping you get back to business as usual more quickly, whatever the event.

Recover. Unforeseen disruptive events generate stress through the loss of power people feel when the event occurs but empowerment helps individuals cope. Assess the physical, emotional and financial impact on personnel, and assign others to step in where a given manager may be overwhelmed. I witnessed a key manager in my organization suffer from PTSD during one catastrophic event; though physically unharmed, he was unable to assess the situation or make sound decisions, and unable to recognize this in himself. However others experiencing the same event with better preparation and empowerment coped well.

Chicken Little and empowerment
Chicken Little panicked and led his friends into the fox’s den to their early demise. If he had felt empowered to deal with a falling sky, he would likely not have reacted the same way. Empowering your people and your partners helps build the structural flexibility and mental agility to identify, plan, prepare, respond, and recover in the most effective and efficient ways. In my experience, it is one of the best risk management investments you can make to deal most cost-effectively with eventualities that can and will occur. Empowerment helps you balance risk and the bottom line.

Margaret Bishop is a global consultant to the apparel and textile industry, and an Adjunct Instructor in the Departments of Textile Development and Marketing, and International Trade and marketing at the Fashion Institute of Technology in New York. She may be reached at [email protected].
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