Using Data To Manage Risk

Monahans Technology Series – Article 1

Risk registers – not an area that many people get excited about. But it’s crucial for businesses to determine the risk of certain eventualities in order to mitigate against them. And it’s even more important to identify issues as early as possible and have measures in place to avert any potential impact on business performance.

A risk register is a document that assesses a variety of scenarios, which can be regularly reviewed, perhaps as an agenda at a board meeting, to ensure relevancy of its items. It’s unlikely many businesses would have seen a pandemic as a risk worthy of consideration before 2020 but the impact that Covid had on businesses all over the world was substantial. And we’re now navigating a spike in fuel prices and a cost-of-living crisis, which is resulting in many businesses having to reassess elements like salaries and employee benefits. Otherwise, losing key customers, manufacturing issues and problems in your supply chain might be more typical examples.

How much of an impact would each of the above scenarios have? And if they do indeed materialise, how do we know where to draw the line in addressing them? Perhaps you’ve lost one customer but that doesn’t have a sufficient impact on the business to raise concern. But what about two, three, four?

The key to implementing a response to each scenario is data. In today’s society businesses are – or at least should be – data rich, using said data to measure against specific parameters. It is common for business owners to be emotionally invested in their products, services, teams or locations. If money or time have been spent on a project, it can become harder to be objective, and trickier to know when to pull the plug. But poignant business decision-making should be free of emotion, especially if additional resources are at stake.

Developing a minimum level of KPIs – whether financial or operational – and measuring against these, is a surefire way of determining success (or lack thereof) of a particular project. For a SaaS product, for example, you might consider annual recurring revenue (ARR), percentage of customers renewing their subscriptions, or time taken to resolve technical issues. If the project drops below the agreed KPIs or doesn’t meet objectives within a defined timeline, be strict! Have a plan in place to assess why things haven’t worked out, such as a review to understand what is causing issues, determine associated costs and identify potential solutions. If this system results in a new strategy, great, but make sure you repeat the process of setting further KPIs for the second bite of the cherry.

Decision-making can be the making or breaking of a company, so if you are able to put systems in place that reduce this burden, the more you can focus on the matter of running your business. Structuring the process this way removes any uncertainty and eliminates the toll a project will take – personally and on the business – if it’s underperforming.

Of course, no system is perfect, and while this process allows you to better understand your business, it also enables you to assess your means of data capture for determining subsequent problems. Do you have the systems in place to capture the data in the first instance? Does the data tell you what you need it to tell you i.e. Does it deliver against the outlined KPIs? If not, how can it be improved?

With processes in place that identify risks before they materialise and mitigate against them, it is well within the reach of businesses to successfully navigate such issues. By determining actions in advance, you can remove the emotions involved in making key decisions and only implement strategies that will benefit the business.

If you want to find out more about using data to manage risk, please get in touch with me or one of my colleagues today, and we’d be more than happy to help.

Cara Mastrodomenico