Platt Perspective on Business and Technology

Building crisis management capabilities into the basic business infrastructure 3

Posted in strategy and planning by Timothy Platt on November 19, 2012

This is my third installment in a series in which I more systematically outline and discuss risk and crisis management processes, and best practices for building them into a business’ basic organizational infrastructure (see Part 1 and Part 2.) And I add, in a fundamental sense this is also a direct continuation of yesterday’s posting, which I wrote in direct response to going through a hurricane (see Predicting the Unpredictable – and understanding when you are trying to.)

I have been discussing risk and benefits assessment in terms of a specific business model that I have been developing in this blog: strategically fragile and strategically robust business systems (see Operational failure rates, feedback and remediation, and risk remediation processes 3 for definitions of these terms). And I have defined a term: event valence that represents the positive or negative value of an event or situation to a business and its scale of impact, as measured against pre-event baseline valuations (see Part 2 of this series.) At the end of that posting I stated that:

• Effective strategically robust systems are set up and managed operationally so as to asymmetrically shift relative risks and benefits towards higher potential rewards than risked losses, greater probability of rewards achievement than loss, or both.
• And that both sides of this have to be taken into account: relative scale and relative likelihood. And this can only be partly achieved through benchmarking from historical trends and events records, and particularly when working in a rapidly evolving marketplace.

Business owners and leaders have to take calculated risks if they are to succeed. This holds for new businesses and startups as they begin their path forward, and with so much to do in developing both internal organization and infrastructure, and marketplace reach. This applies to early stage businesses as they reach for and exceed their cash flow break-even stage and begin to bring in a profit. And it applies to businesses that seek to scale up and grow, finding the right balance between profits taken and assets rolled back into the business for its growth. This applies to businesses in all situations and at all stages. Owners and leaders take calculated risks, and part of what makes their decisions risks is that it is rare that they take place under circumstances of complete and perfect knowledge. Risk is simply part of the game, and essentially always. But flexible, robust business systems can in many cases shift the odds and increase likelihood of success. Strategically and operationally fragile businesses spend what should be avoidably large amounts of their time facing poor odds of success, and they have fewer resources that they would need to shift the odds in their favor.

In a fundamental sense this posting is all about flexible infrastructure and processes for deploying and utilizing it to business advantage. I cited Plan B approaches yesterday in my posting: Predicting the Unpredictable – and understanding when you are trying to. In that, the first businesses to get back into effective operation after a disaster such as a hurricane are the ones that for their industries and business sectors will hold first mover advantage going forward. Everyone else will find themselves playing catch-up. And being prepared to preserve inventory and records, and to safeguard physical plant as much as possible can be the deciding factors that determine which businesses are those first up, first movers.

I stated in my two bullet points above, that benchmarking risk from historical data and trends can lead to faulty analysis and fragile decision making processes. I am going to look into the issues I raise with that in my next series installment. After that I am going to turn to consider backup and redundant systems and into safeguarding and risk-hardening systems that cannot simply be duplicated. Meanwhile, you find this and related postings at Business Strategy and Operations – 2 (and also see Business Strategy and Operations.)

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