Platt Perspective on Business and Technology

Regulatory oversight, prudent business practices and risk allocation – 3: planning and execution

Posted in macroeconomics by Timothy Platt on November 21, 2012

This is my third installment in a series on best practices for developing and managing a business more effectively in the face of outside regulatory challenge, and with a goal of offering a best practices approach for competitively operating in a regulated environment (see Part 1: setting a foundation for discussion and Part 2: preparing for impending change.)

At the end of Part 1 of this series I proposed three points of discussion that I would develop this series as a whole around:

1. Planning for upcoming regulatory change, and knowing precisely what your business will face and where it will have to do things in new ways,
2. Strategically and operationally planning how best to change to accommodate that in satisfying regulatory requirements, and
3. Identifying and acting upon processes and functionalities in your business where you can still create opportunity, where your business can still be flexible and agile.

I looked into the first of these points in Part 2, outlining how knowledge of impending regulatory impact can at best be partial and imprecise as regulatory law is interpreted and enforced by regulatory agencies and in the courts. And in the course of that, I brought in and utilized a business model taxonomy distinction that I have found of real help in thinking about and planning for more effective business strategy and operations: strategically fragile and strategically robust business systems (see Operational Failure Rates, Feedback and Remediation, and Risk Remediation Processes 3.) I ended that installment by noting that “with that, and starting with a non-deterministic, probabilistic understanding of the issues glossed over in my first point, above, I turn to points two and three. My goal in this series installment is to do that. And I begin by considering the costs and benefits tradeoffs of flexibility with its potential for creating duplicate and overly complex systems, and lean agility which in a pure form lacks the flexibility of the type possible from maintaining alternatives, some of which might never have to be used.

• I have written a number of times about the merits of lean and agile, but note here that this cannot simply mean trimming everything to a bare bones minimum and without regard to contingency planning or its imperatives.

The challenges of regulatory compliance that can only begin with maintaining more robust recordkeeping systems, serves in this as simply one example of many possible, where lean and agile and the drive to economize and to focus resources more effectively in the here and now, has to be tempered with a longer term awareness of the potential for the unexpected, and for a need for plan B options and capabilities.

Following through in terms of this example but with an awareness of wider applicability of stated principle in mind, I offer a basic approach to finding a meaningful and effective balance between lean and agile and minimal, and robust with its greater options but with its greater operational and systems maintenance expenses and complexities too.

• Start by identifying potential choke points where you would need robust systems alternatives, and where they would be less likely to be required.
• In a regulatory context and where interpretation and enforcement might vary and be open to potential interpretation, where would a stricter and more limiting interpretation of regulatory requirements create potential problems or challenges?
• What systems might have to be flexibly adaptable to meet stricter interpretations and vigorous enforcement?
• What physical plant systems and operational process resources would have to be in place to meet them, and what of that could be developed and added in when and if needed? And what would make the most sense to have pre-planned for and at least partly in place?
• Here, being ready for change and adaptation with awareness of where that might be needed can become a source of immediate competitive advantage and certainly when competing against other businesses that are caught more off-guard by sudden new requirements.
• This, I add can include being ready to access and utilize pre-vetted third party resources as well as preparing for possible contingencies through strictly in-house planning and resource development and allocation.

I am going to finish this short series at this point, but add that I will be returning to it and to the wider issues raised here in future postings and series too. Meanwhile, you can find this and related postings at Macroeconomics and Business.

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