Balanced Scorecard & Strategy Summit 2013 – Day 2 of The Kaplan Norton Masterclass – Session 3
Dr. Kaplan started the third session of the Kaplan Norton Masterclass – “Introducing Risk Management into your Strategy Execution” by giving examples of risks in the financial and academic industries and went on to present a framework that could be used for differentiating among different types of risk.
- Preventable risks – organizations should aim to reduce their likelihood to zero; e.g. employees’ unauthorized or undesirable behavior and actions; for instance, a laboratory technician in Massachusetts contaminated drug samples by mistake; this led to wrongfully convicted criminals and trial cost of hundreds of millions of dollars.
- Strategy risks – voluntarily accepted by the company as a way to do business and improve key results; for instance, banks take on a credit risk whenever they lend money; “The riskiest thing is to take no risks” (M. Zuckerberg); BP took the risk to drill for oil and gas 3 miles below surface of Gulf of Mexico, which led to their highly publicized oil spill; another example is Boeing launching the Dreamliner airplane model.
- External risks – risks that “we don’t know that we don’t know”; as an example, Infosys is hiring in US mainly graduates from top IT universities in India; a change in immigration regulations represented at some point an external risk for them.
He warned about the use of standards in regards to employing risk standards. Risks have an inherent unknown component. Trying to manage that by establishing standards will diminish focus from the real problem at hand, which is that many and often most dangerous risks are not foreseen.
A good example of cost-efficient risk management solution is partnering with another organization to address risks, as in the case of Stanford University and University of North Carolina backing up each other’s data.
Tags: David Norton, Performance Management Events, Risk Management, Robert Kaplan, Strategy Execution
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