C. Lynn Northrup, CPA, CPIM
Effective management risk is crucial in today’s world of uncertainty. Dealing with uncertainty in the pursuit of value is a constant that applies to all business. It’s a process of dealing with the unknown. Risk involves uncertainty and affects everyone’s decision-making process. It has a direct impact on your strategy and achieving your objectives.
You can’t eliminate or completely avoid risk. No business can grow without taking risks. The famous management consultant, Peter Drucker, identified four types of business risk:
- Risk that is built into the very nature of the business and which can’t be avoided
- Risk that the business can afford to take
- Risk that the business cannot afford to take
- Risk that the business cannot afford not to take
The key to managing risk is having a process for balancing exposure to risks against the opportunities with the goal of enhancing your capacity to create, preserve, and realize value. Risk impacts business objectives which in turn results in a process of aligning objectives to support the strategy.
Every business needs to establish its appetite for the amount and types of risk it is willing to assume. Once this is established consider developing a profile for risk based on risk appetite and how you will respond to risk. Based on the risk profile, you can implement an accept, avoid, or pursue approach in considering a risk response.
Accept means to take no further action on the risk. Avoid means to include steps to remove the risk. Pursue means to act to accept the risk and seek opportunities for increased performance. The steps of accepting, avoiding, and pursuing risk will have the impact of analyzing business performance relative to business strategy and objectives. The idea is to minimize variability in performance.
Monitoring risk performance indicates how well risk management is performing. It also reveals the severity of risk in addition to changes that might be occurring. Based on this information management can then decide on to how best respond to risk. Achieving an understanding of the current and future state of risk management provides baseline information for improving efficiency and effectiveness. By constantly monitoring, businesses take advantage of improvement opportunities.
New improvement opportunities for improved efficiency and effectiveness can occur in any of the following areas:
- New technology
- Shortcoming of past failures
- Organizational change
- Competitive bench marking
- Rate of change
It is essential to understand where there are opportunities for improvement. By monitoring, businesses can then take advantage of opportunity situations that best fit their strategy and objectives. It also helps them develop effective responses to risk based on the severity of risk.
The reality is that many businesses don’t have a good grasp on where they are making their profits. You wouldn’t think this would be the case, but 60 to 70 percent of CEOs are wrong most of the time when it comes to knowing the source of their greatest profits.
Why and how does this happen? Here are the top four reasons:
- Firefighting takes top priority. Being too deep in the forest makes it tough for managers to see the trees.
- People do what they like. Human nature means that business owners and managers tend to favor the area of the business they like and know the best.
- They’re making money. Many companies that don’t know where they’re making money are still profitable businesses. If businesses are making enough money to support their lifestyles and paying employees, being the most profitable business isn’t necessarily a top priority.
- Some of the value is hidden. Inventory and materials need to be tracked and costs need to be correctly allocated to product lines. When you visit the warehouse, you shouldn’t just see goods and materials, you should see cash.
Knowing how your business functions and where profits are earned is critical. Here are some things you can do to better understand your business:
- Don’t be afraid to ask questions, especially when there is the potential to improve profitability and the business.
- Get outside your comfort zone and be willing to explore alternatives, it could pay big dividends.
- Challenge yourself to go beyond traditional ways of solving problems
Many times, making improvements is a matter of changing your mindset. Rather than be satisfied with status quo, be proactive about improving profitability. Here are some ideas:
- Benchmark against competitors and perform a serious, metric-based analysis. You may have an idea on how you are creating profit, but do you know what the competition is doing? What is the competition doing differently and what can you change?
- Get the numbers. Get the facts and the numbers. Track everything and do it consistently. Measure, and measure again.
- Talk to employees. Most people don’t really tell you where you are making money. You’ll find that digging in with deeper analysis can really pay off.
The bottom line is understanding where true profits are made and is the key. Improving productivity, performance, and effectiveness should be an ongoing process that is consistently applied. You’ll find that focusing on the key things that drive your profits will result in creating a competitive advantage that is real and sustainable.
Benjamin Franklin was one of the fathers of our country. He provided wisdom we can use effectively today. His 14 Lessons were provided in our newsletter and I thought it might be good to review them here. They’re listed below:
- Less Talk, More Action
- Don’t Procrastinate
- Be Prepared
- Don’t Fight Change
- Get Moving
- Avoid Busywork
- Give Yourself Permission to Make Mistakes
- Act Quickly on Opportunities
- Continue to Grow
- Keep Going
- Know Yourself
- Don’t Self Sabotage
- Don’t Give Up
- Wise Up
While all the lessons should be followed there a few that I would like to highlight.
First, “don’t procrastinate” links to less talk and more action. Just think about how much time goes by thinking and talking about what we are going to do. Just do it will save a lot of time and produce more results.
When you’re trying to create success, you are constantly dealing with change. Change is a constant challenge. The cycle of change occurs in stages. The tendency is to do the right thing and do it well but you discover that the right thing is now the wrong thing. Then you do the new right thing, but do it poorly. Eventually you do the right thing well.
Implementing successful change requires creating high-impact and inescapable confrontations. The key to successful implementation is focusing on the core contrasts and engaging all five senses in the experience. Confront issues and don’t avoid them. Find and see the new direction or destination. Then believe in a path to take you to doing the right thing and doing it well.
The other lessons I’d like to highlight is keep going and don’t give up. Make sure the destination or target is clear. Then acquire the skills resources, and tools to reach the destination. If the destination isn’t clear, what’s the chance of getting there. Be clear on each step of the journey so you know where you are going.
Believe in your vision and your destination, keep going, and don’t give up.
We don’t like change, but there are times when change is essential. Fear is a great motivator because it can be quickly converted into positive urgency. Urgency helps to sustain change.
How high is the urgency regarding problems you are facing or opportunities that have been presented? Answering these questions should dig into feelings and behavior because logic and words don’t always provide answers. What creates the behavior and your underlying feelings?
Creating a change vision may require looking at the obvious. As you consider the obvious try taking a new look at the problem under a different light. Look for cheap and easy opportunities and solutions. Sometimes the obvious will produce results you didn’t expect. Take a disciplined and focused approach directed toward the right issues.
Ask what changes are needed? What is our vision of where we are going? Also, consider that some things don’t need changing. What strategies might be dangerous? As you consider your vision, think about the best way to make it become a reality.
Here are some thoughts about vision. Strategies show you how to achieve a vision. A plan specifies step by step how to implement a strategy. The vision shows you the end state where all the plans and strategies will take you.
You need bold strategies to match bold visions. Bold can be threatening, and the obvious might be threatening. Making necessary changes requires action. There will always be a tendency to hold back. It’s essential to avoid this corrosive behavior. So, move forward with confidence and determination.
Literally try to see the future. Make your vision so clear that it can be expressed in a page or less. The vision should be moving and bold. Then create a bold strategy to make your vision become a reality. Stay focused, pick the low hanging fruit, and start by getting some short-term wins that are visible and come fast. Most importantly, take things one win at a time. And don’t let up!
Strategic thinking is a diagnostic and situational analysis of the business. It is used to gather information and summarize it into a format for evaluating business possibilities. While strategic thinking isn’t planning, it represents the initial stages of developing a strategic plan.
The strategic thinking process is a tool to help management formulate their thoughts and ideas into a plan. Just engaging in a process of strategic thinking provides a benefit and adds value.
Here is the six-step process that represents the flow of strategic thinking and creation of a strategic planning framework:
- Understand the present
- Establish a Vision of the Future
- Identify the Critical Issues
- Establish Objectives and Goals
- Develop Action Plans
- Plan for and Allocate Resources
These six steps might be different based on the approach. Everyone has their own spin. However, it is a formal or informal process that every business uses to engage in a strategy.
Strategic thinking focuses on understanding the present and identifying the critical issues. This is a worthwhile effort since it gets management and business owners to think about their business. Business owners tend to get too immersed in day to day issues and fail to think about a vision for the future.
Spending more time thinking strategically about the future produces increased profitability and increases business value.
When dealing with problem solving my favorite saying is that “perceptions is 9/10ths of the law.” This is where application of analytical thinking is essential. Understand all the variables and complexities of the situation and keep your mind flexible. Expand the possibilities and don’t jump to conclusions.
Here are the three steps to solving problems. First, clearly identify the problem. From this point, clarify the problem, and then find the cause. The process of thinking or solving a problem only happens after you have captured and fully understand the problem. The biggest hurdle in solving problems is thinking you know everything and that nothing needs to be changed.
Since “perception is 9/10ths of the law,” there is a tendency to base decisions and actions on what is perceived to be true. The key to diagnosing problems is separating what is true from what seems to be true. Don’t jump to conclusions.
Learn to think in and out of the box and master the obvious. Look for potential mental blind spots and avoid them. Sort out the facts, avoid ambiguous and vague descriptions and don’t act on assumptions.
Problem solving is a diagnostic progression of determining:
- And how?
Problems need to be captured, then developed, examined, and given a shape. Try to understand the magnitude of what you don’t know. The current reality of the situation is easy to miss, avoid, or ignore.
A key step in solving problems is carefully examining the details and writing them down. This helps to make uncertainty become clearer. The written word creates conciseness and accuracy and provides a better understanding of the problem.
This process helps to clarify what you know, what you don’t know, and what you are trying to find out. It aids in separating problems from general situations so you can better understand the nature and scope of the real problem.
This clarification lets you evaluate the size and gravity of a problem and puts you on a fast track toward finding a solution. From this point, you can address increasing productivity, improving quality, doing things faster, and reducing costs.
After you have ideas for improvement, the next step is implementing them. Go listen to the solving problems podcast.
The online market place is challenging and different. It is a huge space with lots of buyers and sellers. Just look at Amazon and what they are doing to brick and mortar businesses. It takes more than just throwing up a website and watching the money roll in. For me, it’s been a learning process.
Social media is a part of the selling process and offers lots of moving pieces. I have utilized Twitter, Instagram, Pinterest, Facebook, and LinkedIn. A follower or like doesn’t immediately translate to a sale.
I have an associate who has worked in B2B internet marketing for some time. He offered a tip on who has been successful in this wild world of internet business. He said check out what they are doing and copy them. That was good advice.
The key to success in selling on the internet is accumulating a mailing list where potential buyers opt-in to providing you with an email address. Your website needs to be set up with landing pages offering content in exchange for an email address. This is called a lead-nurturing campaign whereby high-value content or a free consultation is exchanged for email information.
The successful internet entrepreneurs offer both blogs and podcasts to provide quality content to potential buyers. These two vehicles typically will provide lots of helpful information and insight. Take the time to search out successful internet entrepreneurs. Read their blogs and listen to their podcasts.
The products and services offered by these entrepreneurs will likely be different from yours but the process utilized to market and sell is something that can be successfully duplicated. Take the best of what they are doing and put it to use on your website. Find out what software tools they are using and see if they would be applicable to your website.
Many of these entrepreneurs tell about their journey to success. Their website or blog posts in many cases will tell how they solved problems. Trolling information provided on websites to learn about systems, strategies, processes, and software can provide nuggets of information that will save you money and time.
The moral of this story is to duplicate success and copy best practices. What has worked for others, can work for you. Take advantage of whatever information is available and use it to your advantage.
The challenge of change is the challenge of dealing with uncertainty. What’s going to happen if we make a change? The reality of what’s going to happen is that you don’t know until you make the change. This is part of life and living. Creating success means that you will have to bite the bullet and embrace the challenge of what can happen and then learn to deal with it.
Some thoughts on making changes is to assess the current situation and follow this 5-Step Process:
- Understand your strengths
- Where is improvement needed?
- What’s working?
- What isn’t working?
- Create a plan to fix what’s not working
Here are some ideas on how to fix what’s not working.
Improve your effectiveness by doing the right things. After you settle on what are the right things, it is essential to focus on them and set priorities. Do what’s most important first that will make you more effective.
Once you understand where improvement is needed, you should become more efficient by doing the right things right. Review and understand the procedures for getting the right things done and the standards for how they should be done and then make the necessary improvements. This enables you to become more efficient and solve problems.
Becoming more efficient enables improvement and means you should be doing things better. Take the time to think carefully about what you’re doing and find ways to make improvements. Listen to suggestions and sort through these ideas and implement the ones having the greatest impact.
Making changes means doing away with things. This is a great opportunity to simplify and stop doing what isn’t important or doesn’t matter. This is a process of endlessly asking “why” and then following through with new ideas and concepts. Keep refocusing to continuously come up with improvements.
The fifth point of “creating a plan to fix what’s not working” is critical to successfully making changes. Spell out what’s not working and what will be eliminated together with any new steps to be implemented. These actions sound simple and easy but they will require determination and persistence to put in place. This is where focus and refocus is essential.
Destiny is defined as the inevitable or necessary succession of events. The words inevitable or necessary don’t need to determine your future because you can control it. Most people believe that destiny is a predetermined fate. I disagree. You can control your destiny if you make a determined effort to forget the past and look to the future.
The key is to empower yourself to think positively toward the future and avoid judging yourself by the past. Embracing change is essential because you’re not going to get new results by doing the same things.
I’m working on a Mastery course so I thought a blog post dealing with the process would be a good step. Mastery ties together nicely with Creating Success. You must create a vision of who you want to be and how to make the “new you” become real. Decide on how you want to live and then don’t settle for less than you can be.
While I can’t magically convert your destiny in this short blog, I can get you started to move in the right direction. Empower yourself to focus on the problem and not the solution. Ask better questions and then keep asking. Take responsibility and then do something about. Questions provide answers. Ask what you can do and then what must I do? Think in terms of new possibilities.
Change is a big part of the answer. If something isn’t working, then make a change and with something that does. It is a process of making constant and never-ending improvement which provides the growth and change that you envision. Keep expanding your references and be willing to trust what you are focused on. Keep your vision and continue moving forward.
Your mind is your greatest asset so use it and trust it. Try to see life as it is and avoid trying to make it worse. You must dream and have the courage to follow your dreams. You need to muster the courage to move forward to fulfilling your vision. See more and judge less so that you are creating solutions and not problems.
The only way you fail is if you quit.
Helping small businesses is my focus. Business owners are short of time and need help in creating success. Why not offer an intense training boot camp that gives business owners the essential tools they need to achieve success? Thus, the Boot Camp.
The Boot Camp establishes a foundation for Small Businesses to grow and increase their value. Business owners receive problem solving techniques for greater profitability and increasing cash flow. Basically, they are provided with a road map for business planning. This is important because business planning and good strategy is a critical component of success.
One of the elements of effective business planning is assessing the business to determine what needs to be done to get small businesses on the road to success. The Boot Camp spells out business development questions together with guidance on conducting a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis. A key component of the Boot Camp include the basics of profit improvement which are spelled out and combined with the elements of creating value.
The 2nd program of the four-part series addresses the development of a business vision and mission. This discussion evolves into the creation of the business plan and evolving the roadmap to success. The challenge of change is provided together with the steps needed to make change become a reality. Accounting, performance measurement, and the basics of business structure are also components of the session 2.
The third session addresses the basic components of business. Effective sales and marketing steps are rolled out and combined with the processes needed to achieve outstanding customer service. Business processes are one of the keys to greater profitability. The Boot Camp outlines how to achieve more efficient processes. The tools for success are exposed together with how to achieve more effective business operations. Effective application of the tools provides business owners with an effective tool kit and a clear road map for achieving success.
The Boot Camp outlines how you can spend more time working on your business rather than in your business. The Boot Camp concludes with the discussion of the commitment needed to launch the Journey to Results. The Boot Camp will be available by the end of August.