Ignite Profitability with Better Risk Management Techniques

The 80/20 rule is alive and well in more ways than one.  We typically hear about the rule in terms of high maintenance customers or employees who consume 80 percent of your time and resources.  If you could just replace them with more of the low maintenance kind you could make a quantum leap in your productivity.

I've just come across a similar statistic regarding risk management.  According to the Corporate Executive Board, senior management spends 80 percent of their time on risk processes and only 20 percent of their time on actively managing risks and opportunities.

Imagine what could happen if you could break that logjam.  Imagine making risk management less high maintenance.

Plan A is to engage in a program of risk identification and prevention.  It sounds like your typical compliance program.  But that's only part of the story.  If you want to turbo-charge your efforts and make risk management less high maintenance it pays to prioritize your risks and respond to them accordingly.  That's Plan B.

It sounds obvious, but a lot of companies are failing to do that and when the sauce invariably hits the fan being spread too then serves to prolong their decline in growth.

Indeed, improper risk assessment is one of the major factors identified by the Corporate Executive Board in their Annual Executive Guidance as threatening company performance.  Yet companies who prioritize their risk and put resources behind managing the biggest threats experienced 20 higher revenue growth and up to 50 percent higher earnings than their peers who only followed Plan A.

That's compelling evidence.  Implementing Plan B instead of Plan A therefore makes common sense as well as a ton of business sense.

Organizations are studded with opportunities for small, highly targeted business changes that can make a huge difference in managing legal risks that can escalate into expensive lawsuits.  The challenge is finding them and determining which add the most value to your particular organization.  One of the things I teach in The Business Guide to Legal Literacy: What Every Manager Should Know About the Law (Jossey-Bass, 2006) is how to identify your company's legal risk profile and target these hot spots.

Determining the legal risk profile allows your company to target training and cultivate legal literacy where it is needed most.  It helps you create a prioritized agenda.

Targeted training and processes are more practical and persuasive than one-size-fits-all solutions.  Customization makes the law visible and relevant by applying a solution to solve a specific problem.  That relevance factor plays a huge role in make sure that employees don't dune out during training.  As a result, relevance increases the likelihood that employees will actually apply what they've learned.  Targeted training dollars thereby hit the mark more effectively and maximize your return on investment in addition to solving a problem and managing a legal risk more effectively.

Legal audits offer a systematic way for companies to identify and diagnose business hot spots.  The best audits also look below the surface and connect the dots between hotspots and the business functions and decision makers who create them. The added level of detail helps create a blue print for customization and a way to ignite profitability.