Saturday, August 30, 2008

Risk Management

Albert Einstein has said that only those who take risks and go far find out how far they can go. As human beings and managers, we differ also by the level we tend to be cautious or tend to take risks. The truth must be said, we are even more complicated: I can say for myself, and for some close people who I know, that on some issues we are careful and others, take risks; so it is also a matter of issue, not only person.

In work, whether we wish or not, we are exposed to risks: We start selling something that seems "sure", but the market changes; we start developing a project and we have no guarantee that we end it in tine, cost or quality we planned, or be even sure that we reach its ending point. We work with a staff of employees, and someone decides to leave; we receive a large order for monthly service from a customer (working by hours), to find out a few months later that the customer does not have the time and we cannot work even close to the capacity (and income) we counted on. The list is endless. Everybody in work is exposed to risks, managers and workers, but there is a different: We as managers have to take carry the burden. We have to be responsible to the organization, to work, to workers, and to ourselves.

I can say for myself, that at work I tend not to take risks, as far as I can control it. No matter what I do, I know many surprises come with life without me asking, and as I carry the burden also for others, I tend to be cautious. Situations in which I may take risks are those where the main one to loose is me, and not the employees or customers. I know that with risks come opportunities and chances for success, but I hate it as I it means I am to risk other people. That is why I am not built to any start-up; there you must think risk-wise.

Yet, there always are and will be risks, some tips I can share from my own experience:
First, scatter the risks; do not put all eggs in one basket. Prefer several small customers among one big one. I remember, since I was a young girl, a working place, which I was exposed to, and was dependent on one large customer. I remember the day when the connection with this customer came to an ending. When I set up a business, and got my first large customer, it implied a significant growth of my company (from two to five employees). That was the day when I stopped sleeping at night. I started seeking for other customers; I was almost in panic. It took time, almost too much, until I stabilized another large activity, in the same dimensions. The same month, the first big customer collapsed and our work there almost vanished. It is very tempting to work with a significant customer, but we should be sure, that this customer is not 50% of the income, of course not more than that. If the company grows larger, the percentage has to decrease. The same goes for other risks: It is better to have a few small projects than one large one, several products, etc. See what is happening for example with the Crocks company (who sold shoes, until people got tired of them, with on real reason at all).

The risks should be managed, but do not over manage them. We must make priorities what risks we manage, and what we leave out. We must remember that we want to manage and work, not only manage risks about work. We have to decide what the right frequency to manage these risks is. As a rule of thumb, I would say that once a month is a good ratio, but if we are managing a crisis, we manage the risks on a daily basis, or even several times a day, if necessary.

It is important to decide how to manage the risk. As much as it sounds difficult, data and information should be collected, wherever possible, and used in order to manage the risk. Relying on facts and data will help us be more objective and decrease the risk. Sometimes, we think it is not worth seeking, as we probably will not find information or data that will help us anyhow. Yet, it is worthwhile trying. The Business Intelligence is based on involvement of three types: Monitoring (What is happening), analyzing (Why did things happen) and Planning (What can happen in the future). One of the main targets of planning is risk management of the future. It turns, that most of the best performance organizations manage their risks, and do so using Business Intelligence (BI).

However, as we all know, life is more than quantified numbers. It consists of many qualified, intangible facts and assumptions. We have to use other management mechanisms, above the BI ones, in order to decide upon the level of the risk (how likely is it to occur); upon its severity (if it indeed occurs); and on ways of preventing the risk or minimizing its impact.

What do I do?
Try hearing other people who naturally see reality, every one from his or her point of view;
Wherever possible, consult someone external, not emotionally involved who can see the big picture;
Finally yet importantly, do not hesitate. At the end of the day, we as managers have to decide; to cut things down. It is our decision as it is our responsibility.

We will fail. I fail in some risk I take, or are forced to manage (because of external influences). Nevertheless, with some I succeed.

At these times, I try to remember that after all, only those who take risks and go far find out how far they can go.

I wish us all to succeed wherever we are, and specifically, to succeed in managing our risks and failing less.


Sunday, August 10, 2008


My brother in-law is a pilot that serves in the army. More than once, I have heard stories from him, how he and his fellow pilots, serving in the same squadron, succeeded in fooling the pilots from the other squadron in the same base. One may think, that this behavior may suit the youth only, but there is something deeper into it. This is a competition; the same competition that can be observed between departments in an organization, between units in the army, between scientists in universities.

Competition develops; it urges us; it inflames our imagination and drives our motivation. No manager suspects his or her employees that these do not want to work, and will not work if we do not urge them to do so. They are responsible. Managers understand that competition is a partial answer to the endless routine, and competition can, from time to time, increase production.

Nevertheless, competition and compensation have, besides their benefits, some disadvantages.

The first disadvantage, which I experienced, has to do with how it is observed by the employees. "Don't you trust us", they may ask, "that we give the best we can, also without being rewarded by success?"
The second disadvantage, relates with our difficulty to set the right parameters for rewarding the competition; with our limitations in affecting success. We drive people to compete, sometimes against others, sometimes against themselves, and reward them as to pre-defined desired results. Yet, these results depend on various parameters, some external, not being influenced by us, no matter how we act. This may not be a problem if someone was rewarded, relying also on luck; nevertheless, when the opposite occurs, frustration can take place. The more people expect the more disappointment.
The third disadvantage has to do with negative influence experienced while the competition takes place. As it has been reported, in many management books, people want to win, and tend to make figures look better, or at least give their subjective interpretation to results. We do not have to go far to extreme examples as Enron; each one of us has seen many examples of his own.
Another disadvantage has to do with the effect of the competition on other activities of our knowledge workers. These can be someone neglected, while competing. Management focus on a specific issue enables allocating fewer resources, both of the employees and their managers, as to all other issues.
And the last disadvantage, which I experienced, is a result of most competitions being a zero-sum competition. What does that mean? If one department wins, necessarily, another has to lose. And, as in many cases, there are several departments expecting to win, we have more losers than winners. The consequence is that we not also benefit from this process.

What do I suggest? To prevent competitions? Not at all. Some recommendations, based on my experience:
Competition that is not zero-summed is preferred. Two ways of implementation-
A competition in which, every time, a different amount of people win, as regarding to their own achievements. I draw-up, every month, a competition, in which an employee is rewarded as to his or her achievements. In most cases, one employee wins the glory, but not every time. In some cases, a team is rewards, as to their mutual work; in others, more than one employee may win. It all depends on special achievements, not always to do with results that were observed in the ending month. The amount and the definition are not strict. This way, the "good word" reward is never on expense someone else. If you deserve it, and the manager knows it, you will get it, no matter what did the others.
Another "good" competition is competition outside the organization. Every organization has another organization which it competes. Incentive of people to be better of the competitors, thinking how activities can be performed in a higher level than anyone other, surely brings into the organization all the energies that we experience with inside competition. Let us invest our energies in winning others, not ourselves. Of course, we have to be careful, not to cross the lines; not to exaggerate. We have to remain dignified, and more than that, to be honest and fair. Not to find ourselves nearing the edge, enabling the target justify unwanted activities. Our inside differentiation, consolidates us; it makes us a team. This is the rational of the competition between army units. Fighting the others, makes you more connected with your teammates. It has really nothing to do with youth, just another way to compete; another way to crystallize us, just without the disadvantages of inside organization competition.

We just have to be sure we do it right; without crossing any line; without rolling down professional quality; without disrupting human behavior.

I hope we succeed.