Strategies for preventing, reducing and recovering from operating risks.
- Strategies for operational risk reduction and mitigation drawn from three industries:
- Commercial aviation.
- Nuclear power.
- Stop cascading and firefighting.
- Get it right the first time: Improve ‘first-pass yield’ in the growing business.
- Measure forward: 15 ideas for building your early warning system for risks.
- Make success routine: Building reliable processes.
- Cut risks with SCAMPER
Why draw on the experiences of hospitals, commercial aviation and nuclear power for risk solutions in growing businesses?
Operating risk is a new component of managing growth for most companies – especially entrepreneurial ventures. But it’s been critical part of risk management in three global industries for decades: hospitals, commercial aviation and nuclear power. There are three reasons why operating risks have received special attention in these industries:
- Complex systems, technology and uncertainty: All three industries rely on complex systems and routines that include significant, unpredictable and changing external situations: Patients appear with undiagnosed illnesses, critical injuries and failing vital signs. Jets with hundreds of passengers encounter sudden thunder storms or unseen clear-air turbulence. Sudden spikes in electricity demands on the grid require responses in seconds among limited, complex power resources.
- All rely on new tooling and changing technologies plus numerous interactions among different activities for successful performance. All function in environments where the only certainties are change plus uncertainty about what will happen next. The combination of so many critical yet routine activities and decision points, changing external demands and relying on technology create daily risks. The fact that such complex systems, although not perfect, have built outstanding overall safety records in their daily routines is amazing.
- People: It’s humans that design the systems, constantly improve process design and performance, and provide critical judgment and effective crisis response when things go wrong. Success depends on these people. But there are also major drawbacks to human involvement in complex systems. Two examples:
- We get bored fast. This means we’re not very good at completing repetitive activities in exactly the same way, every time, hundreds of times.
- We aren’t consistent performers. We get tired, emotional, fearful, distracted and stressed by life both at work and in our personal lives. Sometimes we just forget or try to bypass the entire activity. All this creates mistakes, slowdowns, omissions, refusal to be a team player and poor judgment on any given day – often without advance warning.
Five strategies to reduce risk make success routine in rapid growth
Consistent first-pass yield: If you get it right the first time, every time, many of the risks of rapid growth simply disappear.
- You won’t have to spend time trying to find sources of problems or execute repairs and band-aid solutions that are only temporary fixes.
- You won’t disappoint customers and damage the business’ reputation from delivering poor quality or late delivery.
- You won’t spend time and precious resources trying to get back on track with a traffic jam of other orders.
- You won’t have to absorb all the costs of failures and trying to make it right.
Of course developing the first-pass strategy is much easier than executing it under real-world conditions. The five approaches that follow target execution of the first-pass strategy in entrepreneurial businesses.
“We try to fix the process – not the product. We focus on plugging the leaks in the process itself and the product improves as the process improves.”
- Frank Bargardo, Termiflex Corporation
Figure 1: Five strategies for Risk Reduction
1) Stop cascading failures:
Until you develop a consistent, 100% reliable system for handling sales and work fluctuations you need to design your business to handle failures and rapid change – both from unexpected changes and unreliable performance. Here are a few risk factors of cascading to watch out for and ideas to help:
Examples of risk factors for cascading:
- Little margin for error and little buffer among coupled processes or business activities.
- Interactions and immediate, real-time inter-dependence among your business operations creates a domino effect. One failure can trip up downstream operations that follow including independent operations that appear unrelated – at first.
- Few back-up systems, skilled people, extra tooling or inventory to fill the gaps when things go wrong.
Strategies, approaches and ideas to reduce the risks of cascading:
Stop tweaking the system you’ve outgrown: Stop the band-aid solutions to solve small problems without changing the system to handle changed (much higher) demands create new risks of failures. Tweaking means more complexity in your systems. And that means fragility and less resilience to external forces and demands. Tweaking an old system makes it more susceptible to damage from cascading due to connectivity among components. Soon your old system is like the proverbial house of cards that can easily collapse with the addition of each new card. The house is built to handle the weight of one new card rather than re-designing it to accommodate significant extra weight of many new cards. And it’s definitely not designed to handle extra shocks like wind or shaking. Tweaking also requires a knowledge of past ‘fixes’ to cope with new problems and that means more involvement from you or a few key staff. After all, who else understands how the whole thing really works?
Find the weakest link under adverse conditions: You’re only as good as the weakest link. Too many growing firms are built like prototypes rather than field-ready organizations for consistently delivering value to customers and profits. Consistent performance with strength and sturdiness is the first goal – a system designed to operate without your involvement. Increase system resilience and develop flexibility to withstand shocks, breakdowns, sudden changes. Design it to continue to function despite failures elsewhere.
Advance warning indicators: In-process and other leading indicators are needed to warn when the potential for cascading problems is building. The May newsletter discussed some advanced warning indicators and you will find more examples by going to http://bretgolann.com/2012/strategies-for-reducing-risk/ and scrolling down to Section 3.
Install circuit breakers: You wouldn’t consider building a house with just one electrical circuit and no circuit breakers. Even one malfunctioning appliance could overload the entire wiring system and result in a total failure, even a disastrous fire. Business circuit breakers are needed too. These are built-in mechanisms that catch and stop the problems early, in time to avoid disaster. Examples include in-process inspections completed at early stages of manufacturing and service delivery processes. The inspections can be conducted by employees or in many case, the inspections are automated. The process measures can be based on defined physical parameters or minimum performance for products and services.
Give authority to line employees to stop an operation due to failure concerns. Provide and train them with decision rules that guide employees on when to hit the switch – define what the hurdle is to stop the operation and what to do next – besides call you!
Minimum standards for accepting new orders – especially customized: One reason for failure is because people don’t understand or clearly communicate customer needs. Requirements for accepting new orders can include questions that must be answered, specifications required before order is accepted and scheduled, sign-offs by both customers and by qualified employees who review potential jobs for clarity, completeness and “do-ability.” These questions or standards also provide guidance and armor that helps employees to resist by-passing procedures/processes under pressure from others – both employees and customers.
Build slack into your scheduled operations: Schedule to 85% of capacity. Require prior approval of a scheduling by-pass from you or someone who understands the big picture well enough to recognize potential problems on this or other commitments.
2) Growing Pains: Stop the Fire-Fighting to Cut Your Operating Risks
Fire fighting shows up in different ways as you and key staff rush to figure out band-aid solutions for the crisis of the day including:
- Taking parts needed for tomorrow’s shipments to make up for today’s quality problems and fill gaps in shipping orders.
- Over-scheduling employees in service businesses or pulling them from their regular jobs to handle sudden field service calls to fix mistakes so you don’t lose the customer.
- Over-loading manufacturing equipment with twice the volume it was designed for or skipping critical maintenance needs that leads to sudden breakdowns.
What’s wrong with firefighting? Isn’t crisis management to solve problems and meet business commitments to customers a good capability? Doesn’t it show creativity, knowledge and judgment to find ways to do more with less? Sure it does – and fire fighting is a great capability for a business to have – as a last resort. But at too many growing firms fire fighting becomes the firstresort – not the last. It almost takes the place of routine daily operations for delivering what’s needed to customers.
Think back to recent fire fighting incidents at your firm and ask: Who was rewarded and how? What were the short- and long-term costs to the company?
It’s easy to answer the question about who was rewarded. Usually it’s employees – or maybe you – who are treated as heroes and indispensable to the company…those are compelling recognition and rewards for fire fighting. Plus you get the job done in the end ..at least most of the time. But answers to the second question about the real costs are less clear yet more important including:
- Disrupted production or service schedules for orders in the schedule queue creating more delays and unhappy customers.
- Costly expediting of orders and other tasks to get back on track.
- Snow-balling problems that create even more fire fighting, mistakes and costs in the days to follow.
- Despite best efforts, the fire can still get out of control with damage to overall financial health, employee morale and customer relationships.
Fire fighting also distracts business leaders like you from important jobs critical for sustained success. Strategic jobs like developing new designs, going after new markets, building strategic partnerships or motivating your staff. Plus there are ripple effects from disruption and distraction. And everyone’s stress increases because fire fighting on a regular basis is exhausting.
Instead of fire fighters you need fire marshals. Their job is to look for potential fires and put them out before anything starts – to prevent risky events from occurring rather than just reacting to the bad news. Several techniques to change from fire fighters to fire marshals include:
Advance-warning performance measures that spot problems while there’s still time to fix it before failures happen. Examples include:
- Customer service cycle times increasing.
- First-pass yield decreasing while re-work increases.
- Percent of expedited orders growing.
- Mistakes due to poor communication increasing.
- Establish budget pools for fixing the root-causes of failures – not just the symptoms.
- Create a “good tries” book. Reward employees for trying out and learning from improvement ideas - even the ones that didn’t work.
- Make sure rewards target long-term business goals and performance – not short- term band aid solutions.
- Measure and reward performance at all levels of your business; individual and across-function or across-department levels.
3) Measure forward: Early warning performance indicators.
The key to managing growth is the ability to know what needs fixing while there’s still time to make changes – and before failures happen. Instead of measuring what has happened you need measures that indicate what will happen, measures for sales, expenses and profits are important but these measures look backwards rather than forward. You need to measure the performance drivers in your business; performance measures that alert you to potential problems in time to make changes. Figure 2: Examples of Early Warning (below) illustrates some examples of useful, early warning performance indicators for growing companies.
Figure 2: Early warning indicator examples
4) Flow like a river: Achieve consistent performance and quality.
When it comes to the performance of your routine operations, is every day a brand new day? Are there all sorts of exciting, unexpected events that keep everyone on the edge of disaster? Do you often feel like you’re competing in the X-Games rather than leading a successful business?
Consistency means promises kept – to customers and among your staff. But inconsistent performance means damaging effects on employee morale and creates a variety of growth problems for your company. It is frustrating for employees to contribute their best efforts only to find their performance undercut by failures in materials, tools or other processes or employees in your business. This is not just a manufacturing or service delivery concern. It applies to people in all other functions like sales, customer service and accounting too. Consistently good business performance from your internal operations must be the highest priority in any effort to handle external rapid growth.
Consistent performance begins with Process Mapping.
Visualize your work flow like a river. Does the process flow steadily and without interruption towards completion of the order? …or does it start and stop? Are process activities happening when they should and in the right order? Are there too many loopbacks for more work or approvals that require moving customer information, products or service schedules around and create delays? Are there dead-ends when special requests don’t fit the process flow at your company? Too many “touches” by staff?
Design your processes to flow continually to the outcomes you want. Think of yourself like a log driver on a river. But not just a driver that jumps from one jam to another without changing the flow that caused the problem to begin with. That’s just fire fighting – not improvement. Instead imagine that you have the power to change the river’s flow. To remove obstacles like rocks, sandbars and overhanging tree limbs that snag production. Straighten out those switchbacks that slow the current and create even more obstacles.
Adopting process management techniques for routine business operations may seem to contradict the creative, entrepreneurial spirit. But creativity and spirit should be saved for business challenges that really need it – not for succeeding (barely!) at routine activities.
5) Reduce risk and cut time with SCAMPER:
Less time means your business can do more with less. That’s a big deal. But other major benefits are more subtle: To do things faster you and your people must do a lot of little things really well, consistently well. And that creates value by itself. Speeding up the small details in routine activities is vital for success and profits.
Reduce the non-processing time: It is natural to focus where the action is. To make machines run faster or people move more quickly. But in almost every business process far more time is spent waiting or getting ready for something to happen than in actually doing anything. Some research has shown that waiting time consumes close to 90% of total lead time (throughput time) from order to delivery. The good news is that it’s usually cheaper to reduce wait time rather than actual processing time. Wait time improvements rarely require major expenses like new machines or facilities.
The solutions that work best to cut time vary among products, service and businesses. But one outstanding approach is the SCAMPER approach for improving products and processes. SCAMPER is an acronym for seven different questions to ask about how your processes operate and designs for products and services in the Figure below. By asking these questions about business processes or product designs you can stimulate creative ideas for reducing time – and lots of other improvements.
Simply asking what can be substituted or combined may not yield the ideas you need . So in Appendix A that follows you’ll find a listing of questions that can stimulate ideas for each of the major components of SCAMPER that are from an outstanding website on this technique: http://litemind.com/scamper-tool/.
These 80/20 approaches to the challenges of operating risks cannot provide comprehensive solutions to all risk challenges. But the techniques do accomplish two purposes for rapid-growth companies:
- The techniques effectively respond to the three goals of risk management:
- Preventing and reducing the potential for risk events to occur.
- Reducing the damages from risk events that do occur.
- Recovering from the damages and returning to effective business operations.
Appendix A: Questions to use with each type of SCAMPER letter:
Think about replacing part of the problem, product or process with something else. By looking for replacements you can often come up with new ideas. You can change things, places, procedures, people, ideas, and even emotions.
- Can I replace or change any parts?
- Can I replace someone involved?
- Can the rules be changed?
- Can I use other ingredients or materials?
- Can I use other processes or procedures?
- Can I change its shape?
- Can I change its color, roughness, sound or smell?
- What if I change its name?
- Can I substitute one part for another?
- Can I use this idea in a different place?
- Can I change my feelings or attitude towards it?
Think about combining two or more parts of your problem to create a different product or process or to enhance their synergy. A great deal of creative thinking involves combining previously unrelated ideas, goods, or services to create something new.
- What ideas or parts can be combined?
- Can I combine or recombine its parts’ purposes?
- Can I combine or merge it with other objects?
- What can be combined to maximize the number of uses?
- What materials could be combined?
- Can I combine different talents to improve it?
Think about adapting an existing idea to solve your problem. The solution of your problem is probably out there already. Bear in mind that all new ideas or inventions are borrowed to some degree.
- What else is like it?
- Is there something similar to it, but in a different context?
- Does the past offer any lessons with similar ideas?
- What other ideas does it suggest?
- What ideas, tools, procedures or technologies could I copy or borrow?
- What ideas could I incorporate? Whom could I emulate? At other companies? In different types of businesses?
- What processes can be adapted to fit my business operations?
- What ideas outside my field can I incorporate?
Think about ways to modify or exaggerate your idea. Modifying your idea or parts of it may increase its perceived value or give you new insights about what components are most important.
- Can you change the item in some way? Change meaning, color, motion, sound, smell, form, shape? What can be modified or made larger?
- What can you add? More time? Greater frequency? Stronger? Higher? Longer? Thicker? Extra value? Plus ingredient? Duplicate? Multiply? Exaggerate?
- What can be made higher, bigger or stronger?
- What can be duplicated? Can I make multiple copies from the same amount of materials?
Put to Other Uses
Think of how you might be able to put your current idea to other uses, or think of what you could reuse from somewhere else in order to solve your own problem. Many times, an idea only becomes great when applied differently than first imagined.
- What else can it be used for?
- Can it be used by people other than those it was originally intended for?
- How would a child use it? An older person?
- How would people with different disabilities use it?
- Are there new ways to use it in its current shape or form?
- Are there other possible uses if it’s modified? Can I use this idea in other markets or industries?
Eliminate (or Minify)
Think of what might happen if you eliminated or minimized parts of your idea. Simplify, reduce or eliminate components. Through repeated trimming of ideas, objects, and processes, you can gradually narrow your challenge down to that part or function that is most important.
- How can I simplify it?
- What parts can be removed without altering its function? It’s ease of use? Appearance?
- What’s non-essential or unnecessary to its functions, performance, ease of use, or safety?
- Can the rules be eliminated?
- What if I made it smaller?
- What feature can I understate or omit?
- Should I split it into different parts?
- Can I compact or make it smaller?
Rearrange (or Reverse)
Think of what you would do if part of your problem, product or process worked in reverse or were done in a different order.
- What other arrangement might be better?
- Can I interchange components?
- Are there other patterns, layouts or sequences I can use?
- Can I transpose cause and effect?
- Can I change pace or change the schedule of delivery?
- Can I transpose positives and negatives?
- Should I turn it around? Up instead of down? Down instead of up?
- What if I consider it backwards?
- What if I try doing the exact opposite of what I originally intended?
 Many thanks to the people at Litemind for the list of questions and ideas. You can find more at