While no one likes the idea of having one foot on the brake while doing strategic planning, there are very good reasons to take the time required to be cautious. We are speaking to the undeniable link between the business assumptions we make and the risks we introduce to the organization during strategic planning. In fact, the assumptions we base strategies upon can mushroom into grave risks and show-stopper impediments down the line – appearing out of nowhere when the business attempts to execute to a seemingly well-laid plan. Twelve to eighteen months into strategy implementation is too late to go back and ask, “What were we assuming…?” Given that time will always be of the essence, what kind of strategic assumption vetting and risk identification is warranted? How much is enough?
Assumptions Introduce Risk
At a minimum, the planning process must involve an evaluation of the impacts that the strategy will have on the business to determine if it will actually help accomplish the outcomes intended. That is the absolute minimum requirement.
The strategic plan development or refresh process is the one key point to get in front of idle supposition and truly manage assumptions, risks and impediments. When strategy is well developed, there will be an actual plan for implementation associated with the strategy. A holistic plan defines goals that support the strategy and addresses the operational tactics that will accomplish the goals. No business possesses a crystal ball to know exactly what will happen in the economy, financial markets or competitors' next bold moves. That means that assumptions are a necessary evil.
Given that we must rely upon certain assumptions to put strategic plans together and that risk will always be present (as will natural impediments to execution of strategy), the following sections will explore each of these factors at the planning level…beginning with a definition of terms and ending with approaches to better manage process.
What is an assumption in strategic planning?
The dictionary defines an assumption as follows: “something taken for granted; a supposition”.
Assumptions form the basis of strategies, and those underlying assumptions must all be fully vetted. Testing strategic assumptions requires allowing those involved with planning to back away from the “givens” and challenge them to ensure the team is not assuming the rosiest of scenarios on which to base strategy.
Considering that the synonyms for the word “assumption” includes words like “hypothesis”, “conjecture”, “guess”, “postulate” and “theory” the concept takes on a more weighty meaning in strategic planning. Yes, assumptions are beliefs we take for granted, but they can be no better than guesses in many cases.
Assumptions are not always justifiable. Defending an assumption may be difficult, as facts are not always available to support the belief. That does not mean that they are incorrect, but it does underscore the challenge assumptions present in planning. In fact, assumptions are particularly difficult to even identify because they are usually unconscious beliefs.
An assumption about assumptions:
One can safely assume that if an assumption is sound, the inferences and conclusions associated with the assumption will also be sound. Unfortunately, the reverse is also safe to assume.
What is a risk in strategic planning?
As a noun, risk means something that may cause injury or harm or the chance of loss or the perils to the subject matter. As a transitive verb, risk means to “expose to hazard or danger” or “to incur the risk or danger of”.
In strategic planning, the definitions applying to both the noun and the transitive verb usage are relevant. A risk might be an event or condition that might occur in the future. Likewise, we may risk financial losses if we bet on an assumption that is incorrect.
An unmitigated risk can become an impediment, so risks must be evaluated in terms of the likelihood they will occur and the impact they will have if they do occur. If the impact/likelihood of a risk is high “enough”, we should identify a mitigation path – as an unmitigated risk can become an impediment later on.
All risk can never be removed from a strategic plan, therefore business planning teams must approach risk from a Cost / Benefit perspective. Risk mitigation in planning can cost speed, but if risks are addressed early the organization can avoid future impediments.
What is an impediment in strategic planning?
An impediment is something that makes movement or progress difficult. It differs from being a risk in that risks are future-based and an impediment is something that is occurring now.
In strategic planning, impediments might be grouped into macro or micro categories. Macro impediments might include: poor culture, business process inefficiencies, lack of job descriptions, no performance metrics and many other general types of issues. Micro impediments might include: core competency gaps, having people in the wrong roles, lack of sufficient tools to support business functions and technology / infrastructure issues.
Knowing business impediments and factoring them into the planning process adds realism to the strategy being developed and the operational tactics needed to implement it.
How should risks, assumptions and impediments be identified?
Identification of Assumptions
Strategic planning is a team sport, so working in teams is a great way to approach the identification of assumptions. In small groups, conduct a “round robin” to identify the assumptions within each strategic theme of the plan. Review the assumptions compiled by each team and discuss. This same approach can be used to identify impediments and risks.
The following are questions that assist to identify assumptions:
– Is there anything being taken for granted?
– Are there beliefs that we are ignoring that we shouldn’t?
– What beliefs are leading us to this conclusion?
– What is… (this project, strategy, explanation) assuming?
– Why are we assuming…?
Identification of Risks
Risks are about events that, when triggered, cause problems. Hence, risk identification can start with the source of problems, or with the problem itself. Remember, risk sources may be internal or external to the organization. Examples of risk sources are: external stakeholders, employees, finance, political and even weather.
Risks are related to the identified threats from SWOT analysis, so that is another valuable reference during the identification process. For example: the threat of losing money, the threat of a major planned product launch being delayed or the threat of a labor strike disrupting critical manufacturing operations. The threats may exist with various entities, most importantly with shareholders, customers and legislative bodies such as the government.
When either source or problem is known, the events that a source may trigger or the events that can lead to a problem can be investigated. For example: banks withdrawing funding support for expansion; confidential information may be stolen by employees; weather delaying construction projects, etc.
Additionally, other methods of risk identification may be applied, dependent upon culture, industry practice and compliance. For instance, objectives-based risk identification can focus on any potential threats to achieving strategic objectives. Any event that may endanger achieving an objective partly or completely can be identified as risk. Scenario-based risk identification – In scenario analysis different scenarios are created. The scenarios may be the alternative ways to achieve an objective, or an analysis of the interaction of forces in, for example, a market or battle. Any event that triggers an undesired scenario alternative is identified as risk. As a final example, a taxonomy-based risk identification can be utilized, where the taxonomy is a breakdown of possible risk sources. Based on the taxonomy and knowledge of best practices, a questionnaire can be compiled and the answers to the questions used to reveal risks.
How should risks, assumptions and impediments be dealt with?
Dealing with identified assumptions essentially becomes a task of translating the assumption to a risk. Once all risks have been identified, they must then be assessed as to their potential severity of impact (generally a negative impact, such as damage or loss) and to the probability of occurrence.
The assessment of risk is critical to make the best educated decisions in order to mitigate known risks properly. Once risks have been identified and assessed, the strategies to manage them typically include transferring the risk to another party, avoiding the risk, reducing the negative effect or probability of the risk, or even accepting some or all of the potential or actual consequences of a particular risk.
Taking the time and caution to identify, asses and deal with the risks and other factors will always be a worthy investment, even when time is of the essence. The vetting of these factors will pay off in smooth implementation of the strategic plan down the line. Your plan can proceed, free of the potholes and other roadblocks that, with a little planning, might well have derailed the best-laid plans.
Find out how confidential, exclusive Vistage peer advisory groups give CEOs and key executives the perspectives and insights they need to drive results.
Joe Evans is President and CEO of Method Frameworks, one of the world’s leading strategy and operational planning management consultancies, providing services for a diverse field of clients ranging from small start-up tech firms to Fortune 500 companies like Southwest Airlines and Bank of America. Evans has written extensively on strategic planning for Vistage members.
Every month, our CEO members meet in person, and tackle business challenges in Vistage Private Advisory Boards. Come together with the best and brightest minds in one room. And see real results.
Learn how you can tap the experience and impartial advice of exceptional business leaders to drive outstanding results for your company.
If you qualify for membership, a Vistage representative will contact you.
© 2016 Vistage