Assessing & Monitoring Risk
Three books on a table. The top book is “Next” by Darrell Bricker, a book that talks about readying for the future
Strategy is less about trying to predict the future and more about going through the process understanding what we really know within a vast field of unknowns. As a parallel, how you factor “weather volatility” into planning your camping trip defines both how you pack your car, as well as what you actually carry into the woods with you. Some times of year are less prone to foul weather, but in executing on, “Hope for the best, and plan for the worst,” we will have to make some guesses on the actual characteristics of “the worst” that we envision or expect.
Whether for a business or a not-for-profit, no path forward is without risk. We are all familiar with reminding people (or being reminded) of the risks of doing nothing. If discussions around strategy become emotional because of having to face tough decisions, the ongoing discussion of risk brings pre-mature (prescient?) hand-wringing of what might happen, as well as various second-guessing and finger-pointing as actual events unfold.
Maybe the past provides useful insight into the future, but the past (even the very recent past) definitely provides common ground for discussions and decisions. If we expand on the line, “I told you so,” we might hear this:
“You told me that, by taking this course of action, good things would happen AND/OR bad things would stop happening. In hearing that, I told you that either the good things you were expecting would not come to bear AND/OR the bad things would continue despite your efforts.”
We can’t expect a shared understanding of the imminence of impending doom (i.e. “Forget how full the glass is now; how can we be sure that water isn’t leaking out?”) If we can find tangible areas to monitor, we can at least have the same ideas in mind when we choose to either heave a sigh of relief, or pause to stretch out the metacarpals for some next-level wringing. Within complexity, “tangible areas” offer a shared starting point for the discussion. Clarifying the extent to which we “know” or “know that we don’t know” can help that conversation to continue in a productive manner.
CONCEPTS: What do we know (or at least have some idea about)?
Monitoring of this nature brings evidence to support a logical connection that we have already identified. This is not “The Royal We,” but rather those (the entire Board?) involved in setting strategy, e.g. “We deliberately diversify our funding among different sources. We do not want our two main donor sources accounting for more than two-thirds of our total revenue.” Feeling that “all our eggs are in two baskets” is a reasonable concern, and we can objectively monitor our revenue diversification. Consistent monitoring of this can:
Provide support for the underlying theory (e.g. We have our desired revenue mix, and we continue to sustain operations.)
Challenge this theory (e.g. We do not have our desired revenue mix, yet we are still able to sustain operations)
Refute this theory (e.g. We have our desired revenue mix, and we are not able to sustain operations)
Of course, in the midst of this conceptual theory-testing, we would have made such very practical decisions as to influence increased funding from our main sources (even if it throws off our desired mix), or to actively seek out new sources of funding (and test to see if the money is really “out there” for the taking). We may have even looked at “right sizing” our programs to ensure efficient delivery.
OCCURENCES: Where do we have opportunities to learn?
Looking at risk forces us to revisit our conceptual understanding, but also forces us to face what actually happens. Tangible occurrences like losing a donor, a policy change, the departure of key staff member or key ally within a funding organization, can all have a significant immediate impact on our operations, but, more importantly, they impact our views of future risks. In discussing these occurrences, we can explore certain characteristics:
Specificity: There is a specific moment in time (likely just now).
Connection: This can be direct (i.e. It happened to us) or indirect (i.e. It happen to someone else).
Both of these offer opportunities to share some starting point in the discussion. Clarifications on the specifics can include verifying (metaphorically), “Is our coal-mine canary dead or just looking sickly?” This does not have to be a contentious question, but the starting point of actual vs. imminent is important. When we clarify our connection to the event, we open up important conversations about:
Recurrence (e.g. Does having one key employee leave mean that we have to brace for a mass exodus?)
Impact (positive or negative) (e.g. Will the policy be interpreted and implemented in that way we envision?)
Impact (significant or not) (e.g. Are there other changes that will offset the net effect?)
NOTE: Recall that we are dealing with an area where we all acknowledge that we don’t know.
SO…
Conversations about strategy are conversations about risk. In sticking to decisions, there is a balance between staying the course and making necessary adjustments. This balance is best served when people with different perspectives and concerns can navigate these connections with curiosity, humility and accountability. The next piece discusses the role of trust in the Board Chair/Executive Leader relationship.