This may sound a little mundane, but with events and changes happening at what seems lightning speed in today’s world, companies of all types and industries need a way to make decisions quickly and effectively.
Which is the core what an ERM program is supposed to do…support the company in making risk-informed decisions in pursuit of value and give it a competitive edge in the process.
Between roaring inflation, supply chain bottlenecks, and other industry-specific challenges, the need for a better decision-making process is widely recognized among executives.
But when the rubber meets the road, many executives find ERM to be too daunting and cumbersome to effect any real change in the company’s trajectory. Surveys from NC State and elsewhere show how a paltry (and ever decreasing) number of respondents felt that their ERM processes create any strategic advantage for the company.
With this fact in mind, it’s easy to see why executives, and their organizations in general, remain stuck.
Fortunately, a company does not need a formal ERM program to realize benefits of risk-informed decision making. As I explain in a previous article on NC State’s annual risk oversight survey, companies who consider ERM to be a separate activity from running the company and cling to formal standards will not gain any strategic benefits from their efforts. Norman Marks elaborates a little more in his book World Class Risk Management where he says:
“…when risk management is implemented in response to regulation, it becomes a cost of doing business instead of a way to do business more effectively.”
Instead, embedding risk into the company’s decision-making and daily operations in a way that reflects the company’s culture and needs will provide more benefit in the long run.
Unless your company needs to have a formal ERM “program” due to regulations or investor expectations, the following four steps are all that’s needed to begin making risk-informed decisions focused on maximizing your company’s
performance.
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Identify and address weak spots
How is your company making strategic decisions?
Do executives dictate what the direction of the company will be, while managers and employees are expected to follow their orders to the letter? This is a very top-down, rigid way for these important decisions that leaves many people feeling like they have no say.
Alternatively, many companies will rely on the counsel of one or two “seasoned” veterans without consulting anyone else. Many mistakenly believe these individuals possess some sort of “crystal ball” and therefore any suggestions are accepted without any challenging questions.
Instead, managers and employees should feel at ease with providing their perspective, asking questions, and challenging assumptions. It’s through this collaborative approach that companies can arrive at the best decision(s) for charting the company’s future course.
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Create a checklist of questions to ask for each decision
The conversation around each individual decision will vary.
But to ensure everyone is one the same page before a decision is made, there should be a standard list of general questions that should be asked from the outset.
Some general questions can include:
- What kind of resources – human, technology, financial, among others – will this decision require?
- Are these resources available internally or will they need to be procured elsewhere?
- Is this a short- or long-term strategy/effort/initiative?
- Does this idea rely on any other processes, initiatives, or projects?
The goal of questions like these is to ensure any assumptions are valid and ideas properly vetted. It’s not about pouring cold water on anyone’s ideas, but rather about asking questions, challenging assumptions and refining ideas so the ideas are the best fit for the company and its long- and short-term goals.
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Proactively communicate with relevant business areas
Most initiatives, especially of a strategic nature, are going to involve multiple business areas. For example, new business processes may require IT to get involved. Or entering a new market will involve legal, product development, and marketing, among others.
A common tendency is to plow ahead and bring relevant business areas in later…
However, not consulting with implementers in the decision phase can lead to chaos later on. After all, it is unrealistic to expect an individual or team to drop everything and rush into something new with little notice. Time is needed to prepare…
To ensure the initiative can be completed on time with minimal (or preferably no) stress and impact to other initiatives or activities, take time to communicate with implementers before a decision is made so everyone has the chance to at least prepare.
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Develop a way to hold people accountable
After a decision has been made, it then moves into the next phase of execution. This step is where the process often breaks down since many companies will not have a documented way for holding individuals accountable who are responsible for carrying out the decision.
The first step in developing this process for your company is to communicate clear expectations on roles and responsibilities for everyone involved. Next, identify milestone dates to check in with these individuals, which helps ensure the project stays on track. And lastly, use relevant and independently verifiable metrics to act as a further check for ensuring executives, managers, and employees are indeed fulfilling their obligations and the company is achieving their goal.
The key here is consistency.
The company’s culture and morale can suffer tremendously if one person or group is held to a different standard than everyone else.
While this list may seem basic at first, many companies will forget at least one of these important components of effective decision-making. The important thing to remember is to develop processes that mesh with your company’s needs and culture. If not, unnecessary chaos will ensue, which is something no company leader wants or needs.
How does your company make important strategic decisions?
To share your thoughts and experiences, please don’t hesitate to leave a comment below, join the conversation on LinkedIn, or if you prefer to share your thoughts privately, send an email to comments@strategicdecisionsolutions.com.
Today’s uncertain world demands agility if a company is going to survive and thrive in the years ahead. If your company finds this difficult and is always falling short of its goals, reach out to me to begin discussing your specific needs and situation.
