It’s impossible to make progress without butting up against things you don’t and can’t know but have to act on anyway. Known-unknowns, otherwise known as risks. Living with unknowns means making plenty of assumptions that leave a long trail in your financial model and every place it touches.
Converting risks into numbers make them useable, but it’s easy to lose track and forget they’re not as certain as they look. Each type needs special attention.
The first and simplest are approximations for the sake of convenience – like monthly travel expenses. Low risk assumptions that let us plan. Colour code them yellow and keep an eye on variances each month.
Then there’s higher risks; stuff we really can’t know but we have to use something so we can get on with things – like new product sales growing 35% by year end, they’re coded orange. If they’re backed up with more assumptions – like hiring new sales resource in March that’ll be productive by July – they turn red. Dangerous, maybe critical.
Compound risks are leaps of faith
Pay special attention to compound risks … they’re the leaps of faith your entire strategy is built on. Tease them out, lay them in the sun, deal with them, work them over, measure progress, manage the risk.
Test them whenever your team get together. Can you still sign up to every one? Thinks like:
- We can hire the people we need in this time window with the right skills to do the job we need doing.
- We can raise enough cash.
- We can outsource production by October.
- The market will buy software to replace the soft-skills they’re used to.
- The market for this kind of product exists or we can create it.
- We can find acquisitions that fit with the strategy.
Leaps of faith are the pivot points for success. Leave them to luck or to manage themselves, assume someone else is on it … they may as well be a Wish List. Do whatever it takes, report on progress, agree next steps, follow through … taking control is how you make things happen.
You can never eliminate risk. There’s always a bunch of stuff you don’t and can’t know for sure. Separate out the garden variety assumptions from the leaps of faith. Manage both but focus effort on compound risks that underpin the strategy. If leadership is about focus, this is the place to look.
Skippy Strategy: Using your spreadsheet as a prompt, work with your team to identify compound risks and total leaps of faith. Add comments, mitigations, pitfalls. How will you move every risk off the critical list? What’s the plan? How will you measure progress?
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