Your Business Risk Heatmap. In Blackboard Fridays Episode 119, Jacob talks about Systems and Processes. Need this implemented into your business? Talk to the international business advisor who can do exactly that – Contact Jacob, Learn More, or Subscribe for Updates.
Who is Jacob Aldridge, Business Coach?
“The smart and quirky advisor who gets sh!t done in business.” Back independent since 2019.
Since April 2006, I’ve been an international business advisor providing bespoke solutions for privately-owned businesses with 12-96 employees.
At this stage you have proven your business model, but you’re struggling to turn aspirations into day-to-day reality. You are still responsible for all 28 areas of your business, but you don’t have the time or budget to hire 28 different experts.
You need 1 person you can trust who can show you how everything in your business is connected, and which areas to prioritise first.
More than 100 episodes ago, and gosh I love saying that, we introduced you to the concept of your business risk profile, a number between none and ten where you, key members of your leadership team, and then the overall business sit and the impacts, the decisions you make and the risks that you as a business feel comfortable taking.
It’s a key part of aligning your team and this is one way in which it can be applied. Let me introduce you to the business risk heatmap. This is a visual way of mapping out all of the potential risks that could negatively impact your business.
Now, you could create a whole long list of all of those. What we’re doing here is trying to create something that’s a little bit more fun and memorable because, hey, that’s what we do on Blackboard Fridays. For every potential risk in your business, we want to measure it in against two axes.
The first is likelihood. How likely is it that that risk will come to pass? And then the second is severity. If that does come to pass, how severe an impact will that have on your business? And, so, any of those potential risks will fit somewhere depending on how they sit across those two axes.
Let me give you a few examples of one’s that sit all around the heatmap. Number one, here down here in the bottom corner, this is something that has a low likelihood of happening and a low severity. So, this might be, for example, your specialist company fonts have not been installed on your laptop when you go out to deliver a presentation. How likely is that to happen?
Well, not very. It’s your laptop, you probably reviewed the presentation the day before, the fonts were working then, and even if it did happen with apologies to business depo marketing, the consequences of not having the right fonts are probably not particularly severe. It’s sitting right down here in the bottom corner.
Now, compare that with number two, something that is also not particularly severe but which is very likely to happen. This might be the likelihood that one of your team members calls in sick. You know over time that will almost certainly happen. But what consequences will that have on your business? Not an enormous amount. And so if you’re doing this exercise as a group to be honest, a lot of these low severity risks don’t even need to be discussed.
This tool exists for you to debate some of these items that may be a little bit unclear, misaligned, or controversial. So, take number three as an example. This is where you’re competitor lowers their prices by 10%. Now, the actual measurements on where that sits is gonna differ for all of your businesses, but in this case I’ve said okay well what’s the likelihood of that happening? Fairly middling. And what is the severity if that happens? Well again also fairly middling.
It will definitely have some impact on us, but it’s not going to have a massive, shut-us-all-down impact if a competitor lowers their prices by 10%. And if we move to the far end of the severity, and use some examples here, well up right in that top corner, number four, this is your founder dying. I mean, to a degree with enough time frame that is absolutely guaranteed to happen and, for most small to medium sized enterprises that I know, the death of a founder would have a severe impact on the future of the business.
And, number five here, also quite severe. That’s the chance of your founder dying while snowboarding down a volcano, equally severe, far less likely to happen. No doubt, you’re a bit used to Blackboard Fridays and our use of color and here it again has quite a benefit.
You can see the traffic light system here. Green represents those risks that aren’t really that much of a threat of a risk to your business. The key with anything that sits in the green area is that you need to monitor it.
For example, you might have firsts-aid register in your business, so every time somebody cuts their finger, slips over while wearing clogs at Friday drinks, it gets registered. The orange category is when because it’s a heightened risk, it’s a heightened likelihood, you’re going to need to manage that, so, for example, this might be some workplace health and safety training that I’m sure you run with your team every year.
The red area, these one’s that would have a significant impact on your business. These are one’s you absolutely one’s you need to mitigate. It’s not sufficient to just monitor or manage your founder’s snowboarding habits. You need to mitigate that risk so that if it does come to pass, it would have a dire consequence on your business.
So, for example, insurances for key people in your team, in particularly the founders or shareholders, asset protection, a lot of those things, are part of the mitigation you could do to minimize the impact of severe risk. The reality is for your business that some of the biggest risks are going to completely blindside you.
They’re the black swans that you can’t even project having a consequence on your business. They’re probably not even going to show up on your heatmap. But for those things that you can foresee, having a conversation, mapping this out, can help align your team to deciding what it is that you need to do.
Monitor, manage or mitigate and I’ll give you one last link, the connection between this and that number, that business risk profile is the higher your business risk appetite, the further to the right these green and orange lines are going to go. A business that has a risk appetite of nine or 10 out of 10 is going to that they can monitor risks where another business that has a risk profile of five is going to feel they need to managed.
There’s no right or wrong answer with that as long as you’re not taking stupid risks. The key is having a number, having an agreed system and having it there so that is can be aligned, comfortable, understood, and implemented, so that your business can do what it needs to do which is not worry about the risks, you go out there and create opportunities.
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