Business Risk Case Studies Ba31 Laying down the framework of a Case study Living Dangerously : Business Risk Management Series
Risk Management is not rocket science
It is not finding the known, the unknown and the unknowable
It is not quantifying the limitless
It is not even, solving the Rubik’s cube
It is at best complex predictive analytics
It is a process of investigating, analyzing and breaking up multi-dimensional variables into linear components, and measuring, responding and mitigating the Risks.
De mystifying Risk
Risk Management by TCM is not a new Risk theory
Risk Management by TCM is merely an innovative application of existing theories of risk to reach a desired conclusion.
Risk management in TCM is done by goal changing.
What was “Risk” in the classical theory is the “Risk Cause” in TCM
What was “Risk Effect” in the classical theory is the “Risk” in the TCM
The goal changing helps in easy measurement and quantification of Risk
This is because the effect of any action like “price movement”, “supply delay”, “failure of quality” or “incomplete construction” can be easily recorded and measured, while the actions themselves may not be directly measurable.
Hence Risk in TCM can be recorded and quantified.
Goal changing makes it easy to measure Risk
The “Risk Cause” is classified as “Expected” or “Unexpected” in the TCM
Both “Expected” and “Unexpected” “Risk Cause” results in variance
Variance is the measure of dispersion, the volatility around the mean value.
This variance or volatility is the measure of Risk
Since this variance happens all the time, Risk in TCM is a certainty that must be continuously measured, monitored and controlled.
Risk is the variance or volatility
To monitor and control variance or risk, the variable factors, that are likely to influence future behavior or results, are first segregated
This segregation and data pruning is done to narrow the number of variables to a few relevant predictors based on which the risk response model is formulated on the basis of variance observed and the risk cause identified.
Such variance based prediction models may be based on a simple linear equation or a complex neural network.
This model is validated or even revised, periodically based on its Time Cycle Module, which could be one week for projects and once a day or hour for price movements.
Predictive analytics used for managing risk in TCM is used in the field of marketing, CRM, IT security, engineering, meteorology, and traffic planning.
Identifying relevant predictors is the key
Risk manager must have vertical knowledge
Predictive analytics can be complex based on statistical modeling or only checklist driven, both based on user experience
In either case the predictive analyst must have both user experience and insider knowledge of the vertical
In both cases the model uses the same core principles of breaking complex variables into simple linear equations, and measuring the mean deviation, investigating the risk cause and planning the risk response
For example in insurance a customer’s, gender, age, occupation, education, hobbies, and driving record are the relevant predictors that would correctly predict the risk and the value at risk VaR in any insurance policy
Risk Manager must have authority
Risk manager must have seniority, experience and authority, and need not be a statistical expert
Risk management systems must be both dynamic and adaptive and not static. Both models and predictors must be validated regularly.
Risk management must be treated as a routine activity, not as a one time check, with process interaction on a daily basis.
Risk management, variance and predictive analysis were used even before the IT age and discovery of statistical tools by using the first principles, experience and human judgment.
The case study of the product launch of the soft drink company demonstrates how to risk manage based on first principles.
Risk management in TCM Case Study includes
Laying down the framework Ba31
Identifying boundary conditions & inputs required for analysis Ba 32
Defining the time period of evaluation & repeatability checks Ba 33
Specifying the qualitative aspects and terms of reference of acceptable variance Ba 34
Identifying the relevant predictors Ba 35
Investigating the Risk cause Ba 36
Measuring Risk and determining the Value at Risk Ba 37
Formulating the Risk Response Ba 38
Risk margin and transferring of Risk Ba 39
Mitigating Threat by sacrificing Opportunity Ba 40
Laying down the framework ( Case Study )
Case : : Risk Measurement for the product launch of an
aerated soft drink
Project Name : Zephyr
Vertical : FMCG
Domain : Marketing & Advertisement
Deliverable : Brand launch of a new soft drink
Vehicle : Promotional campaign for the launch
Association : Taste association with Brand name
Taste : Tangy, “zyzy” taste at the tip of the tongue
Campaign : A promotional campaign to match the unforgettable
zyzy” taste to create the Zephyr USP
Other Terms of reference
Product Quality : A fizzy drink blended with a salt that is mildly
pungent and tickles (irritates) the skin at the
tongue tip for a few minutes. A matching
promotional campaign that creates the feel
Project Cost : Launch cost USD 45 million
Project Time : To kill point in 20 weeks
Risk : Insignificant market response
Complex operational Risk with high Risk impact
Insignificant market response is a Risk threatening both the scope and the quality constraint of the Project. If the market response is insignificant, both the product and the project would have failed. It is the highest category of Risk in its domain equivalent to a market crash, a grid collapse or a total loss accident claim.
Insignificant market response is an apparently non-quantify-able risk. It has no direct relation to the variables or the inputs to the project. In the next issue Ba32 in the coming week we will see how this risk is demystified and measured, and how the Risk causes are investigated .
This slide show is a sequel to our earlier presentation
Living Dangerously :
Managing Risks in Business Ba01
It is part of the Business Risk management Series Ba 01……
Others in the pipeline are
Series on Financial risks : Fa01…Series
Series on Technology risks: Ta01…Series
Series on Career risks: Ca01…Series
The Project Management Time Cycle – Vol. I TIME CYCLE MODULE: From concept to feasibility ISBN 1440493332 available at Amazon Economy to Ecology Our goal is to help promote clean, safe and better practices in economy and ecology worldwide. Balanced, efficient and a little more sustainable. Kindle Blog Ecothrust ASIN: B0029ZAUAY For any queries mail to [email_address]