Archives for posts with tag: Risk Management

I find that many employers do not have an up-to-date understanding of some of the real job requirements in their businesses. There is a strong reliance on the job description as the measure of productivity but an absence of the understanding that jobs are more organic that they used to be in a fast changing economic climate. Employees are more often than not required to think on their feet and do that little bit extra to ensure that the job gets done. Job execution is now more of a feature of on-going trouble-shooting, system adjustments, and even fire-fighting to remain ahead in the very dynamic competitive game.

Productive efficiencies and employee morale can be seriously eroded when employer expectations do not match the needs of job execution. This has implications for broad-based job analyses so that businesses have a real time appreciation of what it takes to remain competitive and what employees are actually being asked to do. New acquisitions, diversifying, attrition, or sometimes a simple move to a new space may warrant some re-structuring. This brings the possibility that the current situation may now require new inputs and methodologies. The job analysis bares gaps in expectations and resource allocation for early intervention to improve efficiencies.

 A job analysis documents the requirements of a job and the work to be performed. It is a developmental instrument that encompasses the job definition and description, measures for performance appraisals, selection systems, promotion criteria, training needs, and compensation plans. Job analyses should be revisited every few years to remain relevant. Keeping the job requirements current would require an employer to actively seek employee input that will inform the systems and practices adopted. This makes the practice an important feature in risk reduction.

My preferred method of information gathering for analysis is the worker interview in a standardized format, which would provide subjective information from workers about standard and non-standard aspects of the job, as well as a range of regular worker inputs that may be outside of the standard but perhaps need be included. The requirements of a job are constantly evolving in a dynamic economic environment, and very often these activities are not legitimized. This can play havoc with established management structures and lead to conflicts and employee dissatisfaction.

Because the information provided will be subjective, and interviewer’s questions could be misunderstood, there is the possibility of distortion to the analysis. Selecting experienced and knowledgeable workers and trained interviewers could mitigate some of the potential bias. But sometimes new employees see things with fresh eyes and have much to offer. Unskilled workers who operate at the tail-end of productive processes can also bring some meaningful insights to bear on improving those processes. I find this aspect of the job analysis crucial so that systems remain grounded in the reality of the job both ideal and actual. Interviewing several workers engaged in the same activities will allow the analysis to abstract and categorize the information based on similarity of responses. This cumulative dimension will give greater stability to the results.

To further insert objectivity into the analysis, I often combine interviews with a web-based structured questionnaire. This would tend to remove possible interview ambiguities, and allow for a wider coverage of participants at a lower marginal cost, with less work disruption. It would also facilitate quicker analysis and feedback. Using company intranets for web-based analyses would afford easy access to the final product across the board. But for small businesses without intranet facilities, an e-mail questionnaire will suffice.

The face-to-face process of the interview will lend credibility to the information which could then be used as a baseline measure in the structuring of the questionnaire. The disadvantage of questionnaires is that they are time consuming and expensive to develop, and the impersonal approach may be a demotivating factor for respondents. But the utility and reach of questionnaires, their long term application, and cost savings in administering them would outweigh such concerns.

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Merlin Hernandez is an entrepreneurial development and management consultant who operates mainly in the small and medium enterprise sector. For more information on this and other topics, please send enquiries to businesssolutions1168@gmail.com

by Merlin Hernandez  

A well-executed business evaluation provides a valuable planning instrument for the establishment of priorities and resource allocation for overall operational improvement and the satisfaction of customer needs. Evaluations also offer a measure of whether objectives and goals are being achieved, and whether the organization is effectively adapting to new environments, trends, and technological changes. 

Evaluations, however, can be a double-edged sword in that they often bare deficiencies in operations especially if there is a granular approach that does not recognize integrated efficiencies. This can become a disincentive to making the necessary improvements which may appear overwhelming if each deficiency is viewed in isolation. Cost is the most common deterrent and many smaller businesses may not be able to afford the time and expense of installing new systems and procedures. Evaluations can also bring some disruption to work routines which can impact short term goals. 

Business evaluations assess policies and procedures for coherence between systems and specific objectives e.g. measuring whether customer service policies actually respond to identified customer need. Evaluations allow the business to take an objective view of where it stands in relation to where it wants to go. The business might then leverage its assets to achieve its objectives through more informed choices about what systems work and what do not. 

Evaluations might examine organizational culture and structure, governance policies, work flow processes, KPIs, employee turnover, client satisfaction, and funding streams, among other inquiries. They also bare inherent and potential risks that will guide decisions about the design of business functions and the establishment of priorities. The elements of an evaluation are organizational objectives and goals, a needs assessment from end users of evaluation results, and a trained assessment team. 

These assessments can be done in anticipation of a strategic move to better position the company for success or as an exercise in assessing effectiveness. It is through the evaluation process that the most meaningful strategies are developed, improved, and refined. An evaluation provides the kind of insights that bring clarity of vision and purpose in building strategy. There are distinct advantages to an integrated evaluation framework that examines preparedness or efficiencies throughout the entire organization in order to maintain internal and external consistencies. An integrative evaluation takes a collaborative approach among both internal and external stakeholders so that findings dovetail seamlessly for an action plan that is strategically acquired. 

Key factors for a meaningful assessment are the organizational culture and decision-making policies, power hierarchies and centers of influence, horizontal communication, and a trained assessment team. It is often a good strategy to use external SMEs for organizational assessments since having line managers (internal SMEs) as evaluators risk introducing bias to the process through departmental agendas and priorities. But external evaluators can add to the cost and many medium and small enterprises may postpone or eliminate the evaluation exercise as a planning tool. One way to address the issue is to have line managers trained in evaluation techniques and expectations. 

But an evaluation is not a luxury that can be cut from the budget or postponed. It needs to be done from an assessment of a new venture’s potential to meet an identified market need, through an expansion of the customer base or to tap into new markets, to evaluating the resource capability required to achieve goals and objectives. Evaluations also enable the development of contingency plans that would mitigate an emerging risk profile to emphasize anticipation and preparation over after-the-fact response and crisis management.   

As the business plan evolves from the assessment and analysis phase, it is also good strategy to measure the proposed venture against industry best practices and the heuristic rules that apply. This is done from the perspective of process mechanics as well as change management aspects to arrive at a conceptual framework suited to that particular business in all its specific peculiarities in terms of cost, flexibility, work flow, time and resource constraints etc. Failure to conduct an evaluation when it is indicated can result in ill-informed decision-making, unrealistic expectations, poor appreciation of threats that can impair desired outcomes, and unpreparedness for contingencies. 

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by Merlin Hernandez

Small businesses typically develop their risk profiles from past experience and management judgment. But current economic challenges would indicate the need to look beyond what is known for their long term survival. Smaller enterprises are increasingly finding lucrative opportunities overseas. Size and capitalization are no longer impediments to operating globally as information technologies have so reduced time-cost considerations as to afford small and medium enterprises (SMEs) entry to doing business internationally.

The globalized environment and its increased interdependence, however, has funneled a rise in the sources and speed of risk transmission in vital areas such as financial markets, energy, internet, and logistics to require an altered mind set in assessing risk. For example a distant earthquake or typhoon that causes internet disruption or extensive damage to port facilities can cause significant rupture to the supply chain or short term market potential. Additionally, the effect of the global financial crisis on capital markets, and the new global politics of debt and its impact on economic growth, taxation, credit markets, regulatory changes, and political stability bring greater uncertainty into the global business and investment climate.

In spite of what has been described as anti-globalization sentiments, SMEs are still finding that globalizing operations is worth the risks to reduce costs, improve efficiencies, and increase profits. Even for SMEs that choose not to ‘go global’ these risks may still affect their operational efficiencies. A well-structured global strategy can offer better supply chain management, opportunities to exploit overseas market niches, or centroid manufacturing advantages in order to compete more effectively. But in the dynamic world of contemporary business, new types of risks are always immanent, and firms need a risk management protocol that constantly scans the environment for new threats. This makes risk identification as a feature of historical data analysis limited in its ability to mitigate challenges in an ever-changing landscape.

Risk management plans also fall short when they are siloed within the business life cycle, phase, project, or unit in an approach that strategizes for causes and their direct effects. Failure derives from attempts to minimize the effects of those causes without accommodating the full long term strategic perspective, changes in the operating environment or new opportunities for competitive advantage that might arise out of those risks.

Since business activities remain organic and interrelated for long term efficiencies, risk management should take an aggregated approach with management action focused more on root causes rather than immediate causes, using integrated mitigation strategies for wider organizational benefit in the longer term. Contingency planning, disaster management, and a change management orientation would additionally provide an agile response matrix for greater risk tolerance and mitigation in a contemporary risk management approach.

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Merlin Hernandez is an entrepreneurial development and management consultant who operates mainly in the small and medium enterprise sector. She has extensive experience in International Trade. For more information on this topic, please send enquiries to businesssolutions1168@gmail.com

by Merlin Hernandez

Small businesses tend to concern themselves with issues of revenue growth, managing their human resources, rising costs, marketing strategies, and maintaining healthy cash flows. And this is as it should be. But there is often an absence of specifics in the level of planning that lays down the pathways to achieving desired goals. Businesses need to make decisions that can reduce risk, improve performance, and enhance the return on their investment. Decisions need to be predicated on an understanding of key performance indicators that provide a continuous mechanism to show what is working, what is not, and which areas need improvement.

Investment in technology and computer systems, websites, search engine optimization, and social networking has emerged as vital in today’s business environment. But businesses also need to plan for success by establishing performance standards. Standards may be based on a combination of resource capabilities, industry benchmarks, and desired outcomes which are translated into the performance indicators like expense-to-revenue ratios or customer satisfaction ratings. Performance metrics afford better monitoring and control of activities to inform better management decisions.

Small businesses often do not tie the specific numerical metrics to their mission and objectives that will allow the monitoring of efficiencies and shortfalls so that targets remain the focus of all business activities. Performance measures quantify the requirements for achieving goals and enhance attainability by disaggregating the larger vision into actionable pathways of a more granular nature e.g. resources-to-output ratios, time-volume considerations, or employee morale index.

Quantifying the requirements for a desired result ensures that the process is repeatable and sustainable and can be adjusted to accommodate changes in the environment. Metrics must also contain indicators to express qualitative criteria like employee engagement or customer satisfaction using numerical rating or ranking scales. Performance metrics establish an unambiguous frame of reference that the business sets out to achieve or surpass and presents a clear roadmap for employees and managers to follow. They also create an objective platform for evaluating both business and employee performance.

But perhaps the most important benefit to decomposing the performance requirements for the business is that the process readily bares attendant risks. It facilitates deeper insights into the interrelationships among inputs and highlights potential imbalances – resources/allocations must support desired outcomes e.g. can production capacity support the desire to increase revenues by expanding market reach. A change in consumer demand may require additional or new resources e.g. would overtime be more costly that hiring new entry level employees in order to respond appropriately to the change. Performance metrics provide the raw material for the kind of cost-benefit analysis that forms the basis of risk management.

Decision making also comprises analyzing risk and probabilities in order to hedge strategies and minimize uncertainty. The quantifying of risks through performance indicators can tie back to financial and other projections and give a better analysis of the potential to maintain solvency.

by Merlin Hernandez

Earlier this year, it was revealed that the Chesapeake Energy CEO and founder profited enormously from personal investments in company wells through bonuses that were part of his board-approved compensation package. The bonuses may not be quite illegal. However, they bare a fundamental weakness in governing regulations and may yet face mandated clawbacks. But the issue does reflect a corporate governance culture that was not broad enough to be congruent with emerging values in the society. Taking wider stakeholder value into consideration in the face of high unemployment, displaced military veterans, mortgage foreclosures, and the mangled American dream, corporate America has come under more scrutiny than ever. Even with record profits, executive compensation is still expected to bear some relationship to wages across the board in order to be seen as morally appropriate.

And then there is that slippery slope from practices that may be viewed as unethical to those that may be downright illegal. A few months later the Chesapeake CEO was stripped of his chairmanship by a board more responsive to the tide of ethical expectations amidst revelations of personal loans to the CEO from a firm that also finances the company. This was a direct contravention of Sarbanes-Oxley restrictions and a major conflict of interest. All of this while there are reports that capital spending has exceeded cash in operations in every quarter since 2003 – not necessarily a sign of impropriety but a red flag in terms of efficient stewardship nonetheless. The Chesapeake head was also accused of collusion and bid-rigging in suppressing land prices in Michigan in violation of anti-trust laws. The IRS, DOJ, and SEC launched investigations.

A brief study of Chesapeake’s core values explains a lot. There is an almost missionary emphasis on a commitment to “environmental excellence.” Business philosophy, operational values, commitment of resources, and regulatory compliance are focused on environmental protection in a myopic view of the company’s social responsibility. To this extent, Chesapeake appears to validate its values by its actions. But the overarching constructs that would comprise organizational ethics and fiscal responsibility have not been given prominence within those values. This is especially important for a publicly traded company as it leaves clear gaps for questionable, unethical, and perhaps illegal behavior by members of the corporation.

Inadequate governance policies remain a fundamental flaw in risk management. It can expose a business to legal liability, cause damage to the corporate image, and result in loss of public confidence in the stock. Contemporary business is slowly coming to the realization that sound ethics and a keen sense of social responsibility are more than elements of good corporate citizenship. It is indeed good business.

by Merlin Hernandez

In today’s fluctuating economy, business faces many challenges, not the least if which is the need to reduce costs in order to maximize profit margins. Unfortunately, one of the more facile ways employers have chosen to stay afloat is workforce reduction. Though research has shown that a 10% reduction in workforce would yield only 1.5% in cost savings, this strategy has remained a primary approach.

The cost of employee separation, however, can spiral exponentially if the risks are not given careful consideration – severance packages, accrued vacation, employee outplacement services, and the possibility of claims of discrimination. It becomes incumbent on employers to reduce legal liability by closely examining attendant risks and dealing with any complaints of discrimination quickly and carefully. Such complaints, even if they do not prevail, can lead to workplace tensions, decreased employee morale, adverse publicity, loss of business, government investigations, and costly legal battles with consequent damages and/or settlements. In the end the reduction could cost more that some of the re-structuring options that would have kept the workforce intact.

The key is not to strategize for contraction but for recovery, using the period of contraction as an opportunity for mitering so that when the rough patch is over the business is more effectively streamlined to meet its challenges. Strategic cost management that may involve cost cutting but with an eye on maintaining competencies. The re-design of business processes for greater efficiencies often provide the cost savings that can forestall reductions in the workforce. Other strategies would include hiring and wage freezes, reduction of hours/shorter work weeks, work- sharing, re-assignments, and temporary shutdowns.

by Merlin Hernandez

In the typical sophistry of the young, my daughter who has just started college, proposed to justify a flirtation with PR as a career. Her point about the value of PR in restoring trust in the market after a crisis was a good one as it can assure continued profitability. This brings to mind the situation in which BP found itself after the Gulf disaster in 2010 and resultant falling stock prices. Serious questions arose about BP’s risk management oversights vis-à-vis the company’s cost-cutting measures over the previous two years – an ethical problem. BP set about immediate clean up as was to be expected but maintained an emphasis on “unlocking value in the portfolio” (Robert Dudley, BP CEO).

Despite the negative publicity, BP ramped up its cost-cutting perspective globally to show quarterly profits and win back investor confidence. It was a strategy of cost-cutting, developing new oil and gas prospects, finding ways to take advantage of OPEC’s reduced output, and trading shares at a significant discount on the combined value of its assets – all about restoring trust in the market. Once the company remained on a good financial footing, BP had the resources to restore the damage in the Gulf and prove itself to be a good and ethical corporate citizen. The dilemma might have been what comes first, the ethics or the profits? Seen the BP sponsored ads for a rejuvenated Gulf recently? Genius!