At the end of the day, every organization, regardless of industry, geography, or sector, exists to achieve an objective.
This is true whether those objectives are documented, understood, or not.
After all, there has to be some fundamental reason or motivation for an organization’s leaders and employees to show up every day and keep going.
This is one reason why ERM’s ongoing shift from an approach based on heat maps and risk lists to one focused on intelligent risk-taking in pursuit of goals is so important.
And while practitioners may wish it were so, it’s not just a matter of throwing all objectives and all risks on a wall or paper and hammering away at them.
As I discuss at length in another article on risk analysis and prioritization, taking such a haphazard approach can be disastrous. Not only does it waste finite financial and time resources, it also makes executives and the business run around in circles, which is something they will NOT appreciate.
But to begin to properly identifying and understanding what your organization’s true top risks are, you have to first understand the different types of objectives. Let’s dig into this!
3 Types of Objectives
Every objective in any organization from the least to the greatest, the smallest to the tallest, will fall into one of the following three areas. Not all objectives are created equally. Rather, they should be prioritized in the following order.
Priority #1 – Business objectives
Every organization has a purpose. A reason for existing. A mission.
To fulfill this mission, the organization has do certain things. These things are business objectives.
Some of those things must be done, while other things are more ancillary or “nice to haves.” Those items that must be done—consider those mission-critical objectives while those “nice to haves” are non-mission critical objectives.
Even organizations with no explicit mission statement will have these objectives focused on value preservation.
An example of a business objective for Customer Service could be “provide sincere, knowledgeable, and excellent service to resolve customer inquiries.”
Priority #2 – Strategic objectives
In today’s rapidly changing landscape, a strategic plan is no longer optional. The time horizon may be shorter—3 years instead of 10 years, but they are so important for guiding the overall direction of the organization.
Each strategic plan includes strategic goals, which are targets or outcomes that the organization is striving to achieve. Some examples of strategic goals include growing market share, revenue targets, or breaking into a new market altogether.
Once these goals are set, leaders must figure out how they will achieve them—I call these levers. The levers are the strategic objectives, or the avenue by which the business will achieve the goal.
Strategic objectives are about the future (i.e., organizational vision) and are therefore value creating instead of value preserving as is the case with business objectives.
An objective for the goal of increasing market share could be expanding the customer base of an existing product by breaking into a new demographic.
Since strategic objectives are about the future and creating value, you may be wondering why it’s listed as a second priority. The reason is that business objectives are about the bones of the company, or its functioning as an entity. Without these, the company will not be able to pursue strategic goals, much less meet its current needs.
Priority #3 – Initiative or project objectives
Any effort (e.g., project, initiative) undertaken to support a specific strategic or business goal will have its own objective as well.
Understanding management’s view of the project and what they want to explicitly achieve from the project is critical, whether you are a project manager, subject matter expert, or a critical support staff. Otherwise, how can you identify potential obstacles and opportunities—risks—to the project?
For example, a strategic goal of increasing market share will have an objective of expanding into a new geographical area.
But to make this happen, several initiatives for expanded production, distribution, and even compliance with any local rules or customs will have to be undertaken.
Each of these initiatives or projects will have their own objective or purpose to be achieved.
How to Use Objectives for Risk Management
These tiers of objectives will play a major role in how risks are prioritized, since all risks should be linked to one objective.
Keep in mind that, as described in the analysis and prioritization article, objectives should be prioritized before risks are prioritized. A risk with a large impact or likelihood doesn’t automatically get attention or resources. If the risk is connected to a non-mission critical objective, then it will take a back seat over a risk with a smaller impact that has the potential to derail a mission-critical business objective.
While these different types of objectives are unique, they each share one important thing in common. They all link back to something bigger.
More specifically, every objective in an organization should connect in some way to its mission and vision. If an objective is not directly connected to mission and vision—you cannot clearly draw the lines from mission or vision to the objective, then it is not an objective.
Another common attribute between all three is the use of metrics to understand if the objective is successful or not.
Each metric will have thresholds set that will give ERM and company leaders insight into the success (…or failure) of the objective.
Quick note re: metrics: only use one metric per objective. Trying to maintain multiple metrics will simply be overwhelming, especially since thresholds and tolerances will need to be set for all of these metrics.
It may seem kind of mundane on the surface, but focusing first on objectives and then the risks connected to those objectives helps to ensure resources are being directed to their best use and that executives are not bogged down with matters of little to no consequence.
Improving each of these can help boost ERM’s reputation and ensure it plays a valuable role in the organization’s decision-making and not just be a rear-facing, documentation exercise.
Does your organization connect its objectives to mission and vision?
Please join the conversation on LinkedIn today to share your thoughts!
