The Anti-fragile Risk Management (ARM) Model has seven components; the fourth is Product.
- Purpose: Why Does the Organization Exist, what are its objectives?
- People: Does the Organization have adeptness to achieve its objectives?
- Process & Plant: Do the People have the right Operational knowledge to operate the systems they are responsible for?
- Product: Does the organization have a product or service that the market/society wants?
- Planning: Does the organization know how to do Operational and Tactical Planning to sustain or enhance the above?
- Governance: Does the organization have the strategic and leadership capacity to Change the Above?
- Risk Tested: What identified risks can be used to test the above to ensure they are functioning?
Bringing a product or service to market can take seconds (if you are Amazon.com) to decades (if you are a drug company).
Product: A product or service that the market/society wants?
On the one hand it may seem that this component is covered in prior ARM considerations such as Purpose, People or Process & Plant. However, despite a good organization vision, fantastic staff and excellent processes – an organization’s product may still not sell.
The profit motive focuses the mind on which widget to sell or whether or not to exit a dying industry in a timely manner (with notable exceptions such Kodak). Unfortunately for the volunteer and government sectors such signals may be less clear and as a result a decision to abandon a service, program or cause may be more difficult to make with vocal consumers of the service demanding its continuation at any price. Governments in particular are at risk and may trudge on providing services rather than upset a small but vocal minority.
ARM’s Length Definition
The ARM definition is simple to state but may be extremely complex and fickle to measure or plan for (ask your nearest Marketing professional how well they sleep the night before their next product launch): Does the organization have a product or service that the market/society wants and is this product the best way for the organization to use its resources to achieve its objectives?
Why Does this Matter
In a word, ‘cash-flow’. Okay that is two words but it still is the biggest risk criteria. If no one is buying your products – that risk trumps all. If taxpayers are revolting because they do not see the value in the services being provided – that risk could be a change of government. If donors have left in droves because you no longer speak to their social conscious – you got a big problem.
ISO 31000 Context
ISO 31000:2009 Principles and Guidelines references an organization’s products or services in with its overall risk management consideration. In section ‘3 Principles‘, the principle that risk management exists to create and protect value is highlighted including contributing to organizational performance and product quality. Section ‘2.10, external context‘ alludes to but does not overtly discuss the role of having viable products and services.
ISO 31000 Risk Assessment Technique
The methods discussed in ISO 31010 Risk Assessment Techniques can be used indirectly to estimate the viability of a product or service. For the for-profit sector a good cost accounting system and an understanding of organizational brand or inter-relationship of one’s products in the market place is important. For the volunteer or government sectors, detailed statistical analysis may give the reality or at least the illusion of evidence based decision making. Ultimately, the final decision to provide, rescind or change a product is often political or socially driven – and thus the profound risk to these organizations.
Examples of Risk Tests and Mitigation
Risk Identification: The market for and profitability of widgets, ACME Corps primary product, is shrinking over the next five years.
- Evaluation/Analysis: Relative unit profitability for each widget is declining and will continue to do so with foreign competitors entering the market and the ability to download for free widgets.
- Stakeholders: Shareholders, ACME Corporation, current customers.
- Measure: Direct and indirect unit cost as compared to price of the widgets, recent and anticipated sales volumes.
- Example: A Delphi review was done in which future demand for widgets was estimated by leading industry experts. This survey estimated a 50% decline in widget consumption over the next 5 years.
Risk Identification: The Widget subsidy program is now consuming 25% of all government revenues and is expected to climb to 300% in ten years.
- Evaluation/Analysis: Due to an aging widget consuming population and generous allowance to purchase widgets, the Widget Subsidy Program is consuming an inordinate amount of current government revenues. As the population ages, this proportion is expected to double each year over the next ten years. Riots have already occurred in some cities of Widget-land in response to rumors of a reduction in Widget subsidies.
- Stakeholders: Government of Widget-land, taxpayers, widget consuming seniors.
- Measure/Example: Number of widgets consumed per capita, the widget subsidy as a proportion of all tax revenue.