Scenarios and Risk Management

Modern businesses are increasingly complex, making their control dependent on skills and insights that may not always be available in the company. The Scenarios and Risk Management (SARM) service focuses on significant submerged risks that could affect the sustainability of the company into the future, taking a wider view than is possible in most operational risk management processes of the potential risks: what is the worst that can happen to you?

Examples would be:

• What is the worst case for government regulation?

• What could cause the collapse of your markets?

• What external dependencies could sink your business?

• What could cause the Board to be sued for mis-management?

• What are the implications of new ICT developments for systematic fraud?

• What could WMD do to hurt the business, directly or indirectly?

• Is the business open to terrorism from Islamic fundamentalists?

• Is the business a target of environmental activists?

• Are any of the countries in which you operate a major source of risk?

What is the Scenarios and Risk Management service?

SARM is a diagnostic and option finder that will help you smell out risks before they hit, and work with you, using our well-tried tools, to find processes for early recognition, calibrate the risks, and find ways to survive. Our focus is on Srategic, Global, Country and Reputation Risk. We work with a number of partners on organisational risk.

The Figure below mapping the different aspects of risk is based on H F Kloman's "Rethinking Risk Management", Geneva Papers, July 1992. It suggests that reputation risk, in some ways the most damaging, is a result of failures in handling strategic, global or organisational risk.

Methodology

The methodology we follow has four stages, and normally takes 6-8 weeks.

Stage 1: Diagnosis

A series of up to 20 interviews with major players within the company, industry and outside are used to create a list of potential mega-issues. These will be extremely sensitive, and all interviews will be non-attributable. They will use the SAMI Seven Questions ™ to ensure that the participants get a chance to take a wide view of the issues. This will result in a view of the risks emerging from

• The external world

• The industry, regulation and competitors

• The market and customers

Stage 2: The issues workshop

The results of the interviews are analysed and presented to the Board at a one-day workshop. This will identify the issues that require further research or more extensive interviews, and set priorities, using the SAMI "importance/probability" matrix.

Stage 3: Research, scenarios and options

During this stage a number of scenarios will be built to explore alternative futures. This may suggest further research, and initial ideas for strategic options will be developed.

Stage 4: Implications and options

The Board is presented with the outline scenarios, their implications, and some options. The team will write a report following the workshop, and will also provide a workbook containing all the interview material.

Implementation

The SARM service is normally delivered by a team of three, drawn from SAMI Consulting and partner companies as appropriate. Client staff are encouraged to work with the team.

Case studies

• As a result of thinking about possible futures, a computer company realised that a key supplier had a component factory on an earthquake fault line, and persuaded the supplier to set up dual sourcing of the component.

• A house builder analysed scenarios for future business cycles and as a result bought land for its land bank that wherever possible had flexibility of use.

• An Airport was dependent for revenue on landing fees. It considered downside scenarios in which one of the main carriers using the airport went out of business, and as a result developed two smaller terminals rather than one big one. This allowed for mothballing and also gave resilience against catastrophic accidents. They also built up the retail and entertainment facility revenue streams in the terminals and on surrounding land.

• A fee based services business considered the risk from large projects and adopted a policy of keeping all project exposure for one client to less than 20% of turnover.

• Diageo and Unilever used scenarios to explore country risk and opportunities in Poland, Russia, India, South Africa and Turkey.