Training objective
The objective of this practical and simplified mini-training is to show you the essentials of how to integrate risk management into your strategic and corporate planning without over-engineering and complicating it.
What you’ll learn
- How to vertically translate and cascade strategy and objectives across all levels.
- How to horizontally translate and allocated strategy and objectives across the value chain and supporting activities.
- How to identify and manage risks and issues at all levels with proper governance arrangements.
Transcript
[Slide 3] Let’s get the basics right
Many organisations continue to struggle to integrate their risk management into their strategic and corporate planning efforts and to gain value from this integration.
One key reason for this is an over-engineered integrated risk and planning approach.
The integration of risk management and planning must start with a clear understanding of your organisational purpose, corporate strategies and goals, and customer value proposition.
To have that clear understanding, you should have an answer to this key question, “Are you solving the right problems?”
Let us use Disney as an illustration.
Disney’s goals under the leadership of Bob Iger were to create high-quality branded content, embrace technology for brand relevance and become a more global company.
From the very start of his tenure as CEO of Disney, Iger repeated these same three core pillars of the company’s growth strategy. That is, to develop the best creative content possible, to foster innovation that utilizes the latest technology, and to expand into new markets around the world.
In explaining these three goals and related strategies, Iger emphasizes the importance of goal setting in an organization’s leadership to encourage creativity and reduce anxiety caused by a lack of organizational direction.
[Slide 4] Vertically translate and cascade strategy and objectives across all levels
Once your strategies and objectives are known and understood, translate and cascade these strategies and objectives into shorter-term operational, project, and programme objectives for each level of the organisation, right down to every individual in the organisation. These translated and cascaded objectives will form part of the individual’s accountabilities as documented in their performance scorecards.
The translation and cascading of strategies and objectives occur within a given hierarchy of objectives and plans.
The hierarchy of objectives will be encapsulated in a hierarchy of plans. Your plans will show how your corporate strategy is driven top-down and aligned across all organisational levels and initiatives. These initiatives may consist of any number of portfolio, programmes, and projects used as effective management tools for executing the organisation’s corporate strategy.
Everyone across all levels of the organisation and throughout the organisation should understand and be ultimately accountable for the achievement of the corporate strategy and strategic objectives. Individually, they have clear measurable shorter-term objectives that must strategically align with and fully support or complement each other. To achieve longer-term success, manage the short-term performance of all employees at the individual level.
Employees must understand how they can personally influence strategy execution and how their work is important to the overall outcomes. Develop appropriate incentive and reward programmes, as well as clearly articulated career progression and succession paths. Align and synchronise all personal performance scorecards towards the achievement of the corporate strategy. The right organisational design, structure, and culture can effectively facilitate this.
Define the acceptable level of risk that everyone can take at each organisational level based on the organisation’s overall risk appetite. The organisation’s risk appetite statement reflects the board’s view on what degree or level of risk is acceptable or unacceptable to the business in executing its stated corporate strategy. This will enable executives, managers, and employees to make informed and rational business decisions about the risks and opportunities they can take in pursuit of objectives and key performance indicators.
Collectively, all these components form part of the vertical alignment process. Vertical alignment is the systematic synchronisation of organisational levels, people, processes, systems, plans, objectives, incentives, and relationships that align the business, budgets, and operations to the corporate strategy. Hence, the importance of the clear articulation of your corporate strategy.
[Slide 5] Horizontally translate and allocated strategy and objectives across value chain and supporting activities
Apart from vertical alignment, organisations must also horizontally integrate and align objectives and key performance indicators to optimise workflows, collaboration and teamwork across processes, value chains, functional areas, and organisational boundaries. The aim of this horizontal integration is to minimise the silo effect that plague many organisations into inefficiencies and in-fighting or finger-pointing.
Customers do not see the process boundaries and silos within organisations. They only care about the final product or service delivered to them.
Typically, and as an example, procurement measures cycle times to improve customer satisfaction with the procurement process. However, from the customer’s viewpoint, the end-to-end customer experience process, beginning with the need identification to the actual product delivery, represents the complete procurement cycle for the customer.
To capture this entire end-to-end cycle and improve customer experience, business units across the value chain must be involved to complete the organisational-wide procurement value chain for the customer.
Each action in the value chain sequence is dependent upon the performance of the action that came before it. The quality of the series of actions is limited to the quality of the weakest performance in the sequence.
Horizontal integration is about synergising and synchronising objectives and key performance indicators of business units, departments, and support functions along the end-to-end value chain using tools like service level agreements and lean management. Enterprise-wide collaboration, communication, and integration breaks down organisational boundaries and silos. Individuals and teams must cooperate and collaborate to deliver the required value to the customer. Waste or non-value adding activities are to be minimised or eliminated. Policies and procedures must inter-operate and work in concert and harmony with each other across organisational boundaries to fully support and drive performance and value creation.
[Slide 6] Identify and manage risks and issues at all levels with proper governance arrangements
Risks and issues linked to the achievement of objectives are identified and managed at all levels and escalated or cascaded as required based on business rules.
Strategic risks and issues are linked to the achievement of the corporate strategy. These are opportunities or threats to an organisation’s ability to set and execute its overall corporate strategy.
Enterprise risk management effectively requires an organisation to take an enterprise-wide view of risks and controls. This will determine whether the organisation’s residual risk profile is commensurate with its overall risk appetite and tolerance relative to the achievement of its strategic objectives.
Linked to the achievement of business unit objectives are business unit risks and issues. And link to the achievement of operational or project objectives, are operational and project risks.
Identify the organisation’s overall risk profile from different perspectives – organisational or enterprise-wide level. At the business unit level. And at the portfolio, program, and project level.
While risks are rated individually to the objectives they impact, it is also important to bring risks together in a portfolio view that pinpoints inter-relationships between risks across the organization. Correlations may exist. Increased exposure to one risk may cause a decrease or increase in another. Concentrations of risks may also be identified through this portfolio view.
Risks in different business units may be within the risk tolerance thresholds of individual units. However, taken together, these individual business unit risks may exceed the organisation’s risk appetite threshold.
Governance committees and teams at all organisational levels monitor and review performance and risk information. They escalate crucial information based on agreed business rules and triggers.
Institute the appropriate governance arrangements and structure across all organisational levels to drive performance, accountability, and strategy execution.
Risks and issues must be discussed within the context of organisational performance and strategy execution since risk management is about increasing the likelihood and extent of success. Therefore, avoid looking at a risk matrix or a risk register without information on the achievement of corporate strategy and performance measures.