Magazine article New Zealand Management

VOLATILITY: Managing in Volatile Times - Risk Review and M&A Strategies; in the Second Instalment of Deloitte,COs Five-Part Series on How to Ride out the Recession, Deloitte Partners Richard Kirkland and Chas Cable Talk about Conducting a Risk Review on Your Business and the Impact of the Recession on Merger and Acquisition Strategy

Magazine article New Zealand Management

VOLATILITY: Managing in Volatile Times - Risk Review and M&A Strategies; in the Second Instalment of Deloitte,COs Five-Part Series on How to Ride out the Recession, Deloitte Partners Richard Kirkland and Chas Cable Talk about Conducting a Risk Review on Your Business and the Impact of the Recession on Merger and Acquisition Strategy

Article excerpt

Byline: Richard Kirkland, Chas Cable

Risk Co Half-empty or half-full?

Richard Kirkland is a partner in DeloitteCOs Enterprise Risk Services practice. Here he discusses an approach to conducting a risk review of your business.

We tend to want to protect ourselves, our children, our houses, our cars Co itCOs natural, instinctive and we buy CyinsuranceCO against the bad things. ItCOs a pity though that our creative side in avoiding the negative things can desert us when it comes to thinking about how we can turn these situations to our advantage. Worse still, as we have seen play out across the globe, negative thinking can so easily become self-reinforcing Co even debilitating. This can lead to the worst outcome of all: inaction or maintaining the status quo for its own sake.

So how might reviewing risk help you now, and how should it be approached to leave a lasting positive legacy? Take time to reflect critically on:

Co the environment you operate in, and past, current and likely future trends;

Co key premises/assumptions underpinning your corporate strategy;

Co resilience of your business processes

Co the basis for decision-making and the quality of interaction and communication between members of the management team, and between management and the board.

The table (opposite) captures a C[pounds sterling]three-step conversationC[yen] that management and the board should be holding on a near real-time basis in coming months. The board will be aiming to develop or validate your suite of strategic options (defensive and offensive); and management will be seeking to align the business response and the chosen strategy, then execute with discipline.

Both private and public sector perspectives are offered as no one is immune, the principles are universal, and we are seeing the boundaries between the two being redrawn.

1) Understand the key drivers

Stay in touch with whatCOs going on in the economy and take time to systematically understand the resulting Cycause and effectCO in your markets and on your organisation. Make a habit of asking probing questions: C[pounds sterling]What if?C[yen], C[pounds sterling]Why?C[yen], C[pounds sterling]Why not?C[yen]

We have become all-too aware of how interconnected the world has become and there has been much written about the causes of the global crisis. The immediate effect of these developments on our businesses is abundantly clear Co falling demand, rising inventories, deteriorating credit quality etc.

However, how clear are you about emerging or CysecondaryCO drivers and how will they impact on your organisation and your markets? Things can change rapidly with compounding consequences: for example, a debtor book might begin to haemorrhage value, putting liquidity under pressure and in turn jeopardising future funding. Secondary and Cyknock-onCO effects are often less well understood than the initial CyeventCO.

Mobilise senior management and the board to tackle the key issues through a combination of practical tools including: scenario analysis, de BonoCOs C[pounds sterling]six thinking hatsC[yen] technique, SWOT analysis and external facilitation. This will see thinking and operating styles challenged Co unconventional times demand unconventional approaches Co and will encourage broad-based creative thinking.

2) Assess their business impact

Work through the positive and negative impacts of these Cykey driversCO on your business, questioning fundamental strategic assumptions and carefully identifying inter-relationships.

Recognise that there is a distinction between the behaviour of risk factors during normal and stressful conditions. Under normal conditions, the factors are easier to predict and future behaviour can, to an extent, be predicted from past performance. However, during stressful conditions the factors become far more unpredictable and past behaviour offers little help in predicting future behaviour. …

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