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017 - The 9 core sectors to identify risks in the business model
29th June 2021 • The Human Factor • Sonja Stirnimann
00:00:00 00:18:00

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There isn’t anybody else understanding your business model better than you and your team. Correct?

What kind of insights would you receive if the business model would be analysed from a completely different perspective? For example, focusing what could harm the successful implementation of your vision.

Identifying the core sectors of your business model when it comes to protect the most valuable assets. And especially your vision. That is what I would like to invite you to.

Bringing in a new perspective when it comes to challenging the business model is key in our work as Non-Executive Board members as well as in the management. And thus, before the risks are materialized.

Afterwards -when the investigators are doing their job the business model is one of the most important sources during the fact-finding process.

Not all responsible are aware of and sensitised – and that is a fact we must consider in our roles.

The less sensitisation the higher the probability of not understanding the inherent risk of a business model.

Therefore, I am convinced that a deep understanding of the business model with its inherent risk is key for everybody taking his or her role of responsibility seriously.

When it comes to the topic of risk identification process the common understanding is often very allocated to specific functions like compliance and risk management.

That is just one approach and, in my opinion, not the most effective for an organisation which wants to play in the league of “best in class”.

Bringing the risk identification mindset a few levels up – to the executive management and board of directors – the effectiveness increases dramatically.

And not only that: it also allows the executing team to have a real set of boundaries when it comes to risk tolerance.

Identify the risks in your business model

To start with there are 2 dimensions I defined for each key section of the business model

  • Strategic Risk
  • Operational Risk

And for each of the identified risk the

  • Impact
  • Likelihood

The board of directors will have a discussion and opinion on the risk appetite before the management will come up with the defined "Measurements".

The goal will be to have the answers by section of the business model.

Using the described risk canva as an example I suggest starting with the following key areas

  • Value proposition: what is the value we are creating for our clients by doing xyz? Already the value proposition will give answers to the strategic and operational risks.
  • Key activities: what are we doing to reach the value proposition for our clients?
  • What are the key resources we need to conduct our activities?
  • With which key partners are we or will we work together to make our vision come true and following the strategy? And here, please be careful with the key partners due diligence and keep in mind, that the code of conduct also needs to be followed by them. Not to forget the third-party due diligence you do in advance of a partnership.

Other areas to consider as source to identify your risks rather belong to the customers itself by

  • analysing the segments you serve and
  • how you establish and execute the customer relationship.

In our world which operates in the cyber territory as well as in the offline world also your organisation will be active on different channels.

What are these different channels and what kind of inherent risks evolve? The adaptability is often not yet given and the awareness – also when it comes to internal communication – can be improved.

Last but not least two key areas which are not new and an evergreen since thousands of years in doing business

  • the Cost structure and
  • the revenue streams

revenue streams these days and especially within the adapted business models vary and become more diverse than ever before.

The strategic and operational risks need a perspective to ensure completeness.

New business models create new inherent risks – which means the upside and the downside. Would you like to miss an upside? No! Nor a downside!

The goal must be to manage the risk. And that is only possible by knowing them in advance and not after materialization.

KEY MESSAGES

The business model needs highest attention.

And by saying that a structure helps to identify and understand the inherent risks. Which have always two sides of a coin. An upside and a downside.

With using a systematic tool to analyse the business model the entire risk identification process becomes a much more effective and efficient process.

EPISODES' REFLECTION

First part would be to reflect on the business model and especially how the structure of the business model is set up. Here I recommend using a form which supports the vision. My experience is that any kind of canva – and here you are free what to use – is helpful to get the thinking process structured.

In a next step the different sections need to be challenged by identifying the strategic and operational risks – as a first step.

Reflect whether such process is set up and whether there are potential improvements needed.

Keep in mind that the identification process is an exercise which needs to be done by the risk owner at the highest levels. The board of directors and the management team.

When it comes to likelihood and impact the discussion will be held by the same roles.

But – and here is something which is often avoided: the discussion about the risk appetite needs to be done on the Board of Directors level. The implementation will be done by the management team.

I know that is a lot of homework and not be done in a day, but my goal is to start the process and I am sure you will be successful in having that discussion in your designated teams too!

THANK YOU FOR SHARING, SUBSCRIBING AND REVIEWING

Thank you for joining me on this episode of THE HUMAN FACTOR – Corporate Integrity Matters.

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YOU ARE IMPORTANT

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