In comparing alternatives, a pros and cons comparison is often used to determine which alternative is more favorable. This exercise is straightforward and quick to do. For businesses that want to do a more objective assessment, they build a model to assign scores to the different factors.
Through the process, risks could be included as part of the pros and cons comparison. However, the crude evaluation might not be adequate to ensure major risks are addressed properly.
Let’s consider the digitization transformation options for a food wholesaler. The transformation is timely as the business begins the planning for moving into a bigger warehouse. There are two options.
First, a complete overhaul of key applications by replacing them with a fully integrated third-party solution for warehousing and order management.
Second, allocate in-house developer resources to build new customized functionalities to meet business needs.
Both options have risks.
A major risk for the first option is a shift to rely on an external software vendor to support the day-to-day operations.
For the second option, a key risk is whether in-house developers have the expertise to build what the business needs.
Identifying the above risks are easy. But how the business would address them is key to solidify the option to move forward with.
To mitigate risks, the wholesaler needs to develop ways to minimize the potential impacts. There are 3 questions it needs to address.
- What could be done to minimize the risk?
Once the risks are identified, ranking them would help to focus on the key ones that have notable impacts on the business. Then, it identifies realistic and practical actions to minimize the potential impacts. Being able to take an active role in managing the risk puts the business in a less vulnerable position.
- What resource investment (people, time and money) would be needed?
As every action requires resource investment, taking an objective mindset to evaluate viability of the action would avoid debates about priorities in the future. For the wholesaler, getting in-house developers up-to-speed with new technologies that could be incorporated into the new software would require training, and/or hiring people with the necessary expertise. Training and hiring take time, money, and effort. Capacity availability and whether the business is able to support it need to be taken into consideration.
- Does the mitigation action present a time lag that affects the success of that option?
Time is of essence for most strategies. Some mitigation actions take more time to get the people and systems in place. Doing in-house development when there is a lack of skilled developers on staff would extend the implementation timeline. The wholesaler needs to determine what effects the delays would have on the business. This delay could be costly when the operation of the new warehouse hinges on having the new software in place.
Having a good plan to mitigate risks for a strategy is not only good decision making, it puts a more thorough lens on preparing for the known inevitable situations that could cause turbulence along the way.