This is War: Creating an Effective Risk Plan

Apr 21, 2020

I want to tell you how to plan for unknown scenarios in the COVID-19 crisis so that you can understand the impact to your business model in the COVID-19 economy. Most faithful leaders want to scale their organizations and make an impact and grow, but right now, many people are focused just on surviving and figuring out whether they can survive or not.

We Have Been Here Before

I'm going to tell you how to plan in a rapidly changing world, what you need to be doing now for the next three weeks, the next three months, the next three quarters and beyond. Many of us have faced the same challenges before. After 9/11, the software company I was at faced a crisis to get a new product out the door and get much-needed capital into the organization. I created a risk plan and a severity plan to get the product out the door, cutting anything that wasn't needed, to adopt the most critical features for critical clients. To execute on this plan, we met every day in a standup meeting called the war room, where we addressed the roadblocks that were critical to our execution. We took charge of what we could do and didn't focus on what we couldn't change or couldn't deliver. We launched it within six months, and that product is sold today many years later.

With things changing so rapidly. You need to stay on top of the risks to your business in the COVID-19 crisis. Plan adequately for cash, the impact on people, and even pivot your business models if needed. Your business might be in one of the following three scenarios right now:

1) Doing fine

2) Down, but not out

3) Dead in the water.

I want to help you identify the risks and help you address each of these three scenarios, whichever one fits you. The rapid rate of change is not going away. Whether you have revenue that has fallen away, and you're struggling to get it back. Or, you've got a massive opportunity right now. There's going to be an opportunity in the crisis. There's going to be hardship. You need to be able to experiment right now and address the risks in the rapidly changing environment. You need to be ready. You need to be leading. Today is not a time for standing on the sidelines as leaders. It's time to put away fear and to put on love and care for each other. You won't get anyone to move if you don't help them address their fears first.

Part of addressing fear is creating a robust risk plan. Some of the questions we need to answer are:

"What about my business models isn't working right now?"

"What is happening with customer demand?"

"What opportunities are there on the other side? "

"How do we survive with enough cash to make it?"

"How do I take care of my people?"

"How do I take care of customers and others?"

"How do I address my partner's issues and supply chain issues?"

"How do you know when and how to pivot?"

"How do I stay sane as a leader?"

"How do I remove fear in myself so that I can lead others well to do the same?"

1. Establish a War Cabinet and War Room Meeting

Establish a war room to escalate the top risks and establish a war cabinet to identify and keep tabs on those risks. The war room requires people appointed to address the scenarios and a meeting in a cadence that addresses the frequency of change. This war room might be daily. It might be weekly. It might be even hourly for you. Things are changing rapidly for many organizations right now.

In the war cabinet, identify leaders who can keep up. You may even need to rotate leaders over time as people might get exhausted. Let's create the plan together: the risks that your war cabinet is going to address and how they're going to act.

2. Create a Risk Plan and Crisis Dashboard

In addition to a war cabinet and a war room cadence, you're going to need a risk plan. You're going to need a crisis dashboard to address the triggers for the risks. The plan and dashboard will help you see how you're being affected by the crisis. I'm going to address the crisis dashboard another time. I'm going to focus on the risk plan right now.

As a famous man once said, "No plan survives first contact with the enemy." But, a plan will help you to be ready to respond and know what you're going to do. When a risk trigger happens, you need to know what you will do about it and how you're going to mitigate it. That way, you'll be faithful with all your resources and be prepared to act.

In many cases, you can act proactively, so the risk doesn't happen at all. In some cases, you're going to have to react to the changing environment. It's not just thinking about your business overall. Many organizations have multiple business models. Some are doing fine. Some are in big trouble.

Evaluate risks for each business model and ask:

1) What will change in the future? What will not change? You can look ahead and understand if things don't change from right now, what the impact's going to be longer-term on your business model. You need to plan for that. What if things slowly come back?

What if they do not?

2) Assess whether you're "doing fine," "down but not out," or "dead in the water" in each business model. What triggers will allow you to recover? Will it come back? What if it doesn't? You've got to plan for this.

3) Create scenarios for every aspect of each business model:

a. The purpose of the business model, and what the end result is,

b. The people that you serve, the customers, and what problems you solve for them,

c. The people, the staff, that that help you and that are part of your team for that business model,

d. The partners that help you deliver that business model, and

e. The profit that the business model generates, how it makes it, how revenue is packaged and sold, to generate profit at the end of the day.

4) For each of these aspects, assess the risk. Explain what might trigger a risk, the impact of the risk, the probability of the risk, and the severity of the risk.

5) Then plan for each risk. Who's going to own that risk? What activity are they going to take either proactively mitigate it or respond if the trigger happens? Define the result of each mitigation.

Tip: Get the Risk Matrix and follow along as you build your plan

Here's how it works for each aspect of your business. For your purpose, you may be "doing fine," "down," or "dead." That trigger might already have happened for you.

What's the impact right now to you? The impact might mean you need a new business model. It's not going to come back in the longterm. You might want to emphasize other business models.

What's the probability of this risk for the business model you want to evaluate. Is it high medium or low? What's the severity to your organization? I'm going to give you a key for severity.

Scenario 1. Revenue maybe has dropped only zero to 20%, or may even be up a little. That would be of low severity.

Scenario 2. Your revenue has fallen 20 to 50%, which might be a medium severity. That's probably most likely for a lot of us.

Scenario 3. Revenue has dropped at least 50% or maybe dead in the water altogether at 100%. That would be a high severity.

Next, assign someone on your team, who's going to be owning that risk. It might be the CEO, your sales leader, HR leader, the operations leader, or the finance leader. Get the name in there and ask them what they're going to do about it.

Next, establish an activity to mitigate the risk. For the CEO, for the purpose, the activity might be to evaluate existing capabilities, for a new business model. You might take something that you know how to do, and you might test it. The result would be that you have a tested model business model that you can then pivot to survive. Do this risk evaluation for your purpose and do this for each of your business models.

Next, for each business model, address the customers. Maybe the trigger is they're not buying. Maybe they have cash issues. Maybe their needs have changed. What's the trigger that's affecting you or most likely to affect you? Customers may need flexibility and delay of payment on purchases. That might be a high probability right now. It might be a low severity, and you might hand that off to your sales leader. The sales leader might take up the activity to create flexible terms, which then the result is that it retains revenue and booked sales while giving customers flexibility as to when they pay for it.

Next, for the people, your staff, the trigger might be fear or panic. They might be emotionally drained. Or, you may not be able to keep everyone in your current business model, facing potential layoffs as an impact. Layoffs may be a low probability for you, but high severity. If you have to make layoffs, it affects culture. You've got survivors, guilt, and even more issues to deal with if you have to lay people off.

Perhaps the HR leader owns this. To address the risk, they might create a talent plan for the next three weeks, three months, and three quarters. They may establish a care team. The result is you're caring for the people that are with you.

Next, partners. What is the trigger that might affect them? The supply chain might have delays. You might have a shutdown, might have pricing changes.

The trigger might result in a disrupted supply chain for you. Probability might be medium; severity might be medium. It might impact your revenue, meaning it might impact your revenue 20 to 50% from a disrupted supply chain alone, a constraint in the system. The operations leader needs to take that up. As an activity, they create a plan for alternate sourcing in the supply chain. The result is that you limit the delivery disruption of your products and services.

Finally, what's your profit model risk? The trigger might be revenue drop or an execution obstacle, where you're not able to deliver your products and services. Whether it's government restrictions, preventing you from working or whether it's one of the other constraints in the system.

Your potential cash might be drying up. You may need to get some more. The impact might be you're losing cash. Probability might be medium and medium severity to your model. Your finance leader ought to own that. The activity they can take? Maybe aggressively cutting expenses or opening a credit line, whatever fits you. The result is that you have needed cash to be able to withstand the length and duration of this crisis to your business model.

Now, each risk may need to be evaluated against the other risks that you have as well. The cash need that you need may be predicated upon how much disruption exists for the business model. How are your customers responding? How are your staff? Do they have the ability to work? Is the government allowing you to work? Then, consider your partners. Are they able to deliver?

Any of these scenarios may create constraints in the system. The business model might get bottlenecked in any of the coming months. You've got to plan for that for each business model and have the cash available to be able to survive.

Conclusion

Create your risks for every business model and every category. Review this with your war cabinet in a war room and cadence so they're looking out at the longterm issues. Then, as a leadership team, communicate it out to your staff regularly. Tell the hard truth, the real truth about what's happening and what you're doing.

They can take truth better than no news. Otherwise, they will imagine their worst fears. The truth will help establish confidence in how you're caring for them and all the stakeholders in your organization.

After 9/11, it was hard. Yet, we got through it. The war room and risk plan helped me to deliver during a rapidly changing environment. We delivered the product at the right price at the right time to serve our best clients. That product is still serving them today.

This is a time of great opportunity. You may have new products you can develop that serve for decades to come.

Here's what to do as a faithful leader:

1) Establish a War Cabinet and War Room Meeting.

2) Create a Risk Plan and Crisis Dashboard.

3) Keep your sustainable personal rhythms to avoid getting overwhelmed. Invest at least 10 hours every week of deep focus time on growing your organization. Invest your God-given talents in solving bigger problems. If you don't, if you're constantly in crisis mode, you won't lead well.

4) Define your scalable stewardship. Get a repeatable, scalable organizational model and make sure it's going to work for you over the next three weeks, three months, three quarters and beyond. Invest in what you're able to deliver right now, what people buy, and make decisions toward that. We're all acting for the short term right now. We just don't know what's going to happen. You need to have your stewardship defined so you can do that.

5) Create a scorecard. A scorecard enables you to weigh investments for how your business model ought to be working. It must show how an activity leads to a result to create more momentum over time.

Help your team focus and do the work that is most important every day. Help them see the activity they can take and the results that you need to achieve.

For a limited time, I'm giving away my risk matrix. This risk matrix is a special COVID-19 addition. Grab the risk matrix download now and get prepared with your team. If you need help, schedule a free strategy session with me.