Business plan
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BPL42020RiskMgtandPeoplefinal.pptxLecture 4
Evaluation and Mitigation of Risks
Crucial considerations for your new business venture
Business Planning
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You & your business idea
Market segments & value proposition
Marketing Strategy
Operations plan
Risk &
strategic options
Financial plan
Resources available
Resources needed
New Venture Creation
Framework
(Burns, 2014)
Last weeks lecture and the first seminar – market segments, value proposition and marketing strategy
This week: operations plan and strategy
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Lecture Outline
Identifying, Estimating & Mitigating Risk
Legal foundations, Regulatory, and Professional Considerations
People
Definition of Risk
“The possibility that an event will occur and adversely affect the achievement of objectives.”
External (e.g. economic trends, regulations, competition)
Internal (e.g. people, process, infrastructure).
“Identifying, managing, and exploiting risk across an organization has become increasingly important to the success and longevity of any business.”
(PWC, 2008:5)
What if…?
What if?
Micro / macro
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Identifying, Estimating & Mitigating Risk
The biggest risk…
Successful entrepreneurs are calculated risk takers, not gamblers!!!
SWOT should help...
Strengths, Weaknesses, Opportunities, Threats
But SWOT is not so much a tool for analysis as a set of headings for organising the information garnered from your analysis.
SWOT gets over-used as a substitute for real strategic analysis. Don’t over-rely on it.
Entrepreneurs need to do more strategic analysis than a simple SWOT.
Macro-Environment Analysis - Assessing the Business environment with PESTEL
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Political -Government stability -Tax policy -Foreign trade regulations- Social welfare policies – EU expansion
Economic - Business cycles - GNP trends - Interest rates - Money supply – Inflation – Unemployment - Disposable income
Sociocultural - Population demographics - Income distribution - Social mobility - Lifestyle changes - Attitudes to work and leisure – Consumerism - Levels of education - Fashion
Technological - Government spending on research - Government and industry focus on technological effort - New discoveries /developments - Speed of technology transfer - Rates of obsolescence
Environmental
Environmental protection laws - Waste disposal - Energy consumption – food miles/campaigns
Legal - Competition law - Employment law - Health and safety - Product safety
NB PRIORITISE
See VLE for local government example
Industry/Sector Analysis
Michael Porter gives us a useful tool to analyse the relationship between competitors, suppliers and the market…
Use Porter’s Five Forces to assess where risks may arise in the sector.
Porter’s (1980) Five Forces
Which risks matter?
Legal obligations
Ethical responsibilities
Threats that undermine your values
Threats to viability, reputation or commercial success
Threats to long-term sustainability
Different types of risk
Strategic risk (e.g. ‘threat of new entrants’)
Operational risk (associated with the day-to-day running of the business, lead times, employees, safety, liabilities)
Financial risk (i.e. risk of losing your investment, running out of money, etc)
Commercial risk
How accurate/likely are your income projections?
How risky are your customers?
How much credit will you offer to customers and what is the risk of them not paying you back? Could you obtain a deposit or pro-forma payment?
Identify risks (internal and external)
Evaluate probability of risk materializing
Evaluate impact of risk
Deciding how risk might be mitigated
Decide on early warning signs to monitor
Risk Management
Pre-launch delays
Competitors
Competitive advantage
Market
Customer value proposition
Product/service quality
Customer service
Cash flow
Sales
Profits
Operations
Productivity
Administration
IP
Technology
Investment
Stocks/inventory
Merchandising
Debtors/receivables
Interest rates
Exchange rates
Management
See page 221 of Burns, P. (2014) ‘New Venture Creation’
Risk Checklist
Risk Assessment Matrix (RAM)
With your rating scales, create a Risk Assessment Matrix to help you categorize the Risk Level for each risk using “traffic light”
For more explanation visit http:// www.project-management-skills.com/qualitative-risk-analysis.html
Risk Events and Ratings
| Risk Event | Possible causes | Impacts | Probability | Impact | Initial Risk Rating | Mitigation / Treatment |
| Product not ready for launch date | Supplier does not deliver on time. Assembly takes longer than planned. | Need to reschedule launch. Threat to reputation. | 3 | 4 | 12 | Progress checks every week and report to SMT. |
| Bad debts | Poor credit risk assessment Weak credit management | Depends on size of debt – if large could lead to insolvency | 2 | 5 | 10 | Credit insurance. Credit management training and implementation of strong processes |
| Low 0-6 |
| Medium 7-11 |
| High12-15 |
| Exposed 16-25 |
| n | Probability | n | Impact |
| 1 | Unlikely (Very Low) less than1% | 1 | Small |
| 2 | Occasional (Low) 1% - 5% | 2 | Limited |
| 3 | Possible (Moderate) 6%-20% | 3 | Moderate |
| 4 | Often (High) 21%-50% | 4 | Serious |
| 5 | Likely (Very High) over 50% | 5 | Catastrophic |
Risk Mapping (example from previous students’ business plan)
Forecasting Risk in your business plan
Best guess estimates
Produce ‘what if’ scenarios
Identify critical factors
Use spreadsheets to forecast ‘best and worst case’ scenarios e.g. if income lower/costs higher and vice versa.
Would your business still be viable?
What changes/compromises would you have to make?
Attempt to eliminate risk
Attempt to reduce risk
Transfer risk
Accept risk
Mitigating Risk
Launch your product in its ‘minimum viable’ state and then tailor it to the specific needs of customers
Advantages:
First mover advantage
Cost minimization
Market risk reduction
Key to success:
Close customer relationships
Mechanisms to receive their feedback
Lean Start-up
Transfer the risk: Insurances
“Paying out money to cover you against hazards, which you fervently hope will not happen, ranks fairly low in satisfaction. But it should rank quite high in priority…” (Williams, 2013, p.291)
Insurance you must have by law (in UK)
Employers’ liability insurance
Motor vehicle insurance
Insurance that responsible businesses are expected to have
Public liability insurance
Liability insurance related to specific circumstances (e.g. product; professional indemnity)
Insurance you might require to cover risks and disasters
Headlines
“Flooded York shop couple face £30,000 losses”
“Floods threaten to dampen UK economy”
“Demolition begins after Bradford mill fire”
“Scaffolding smashes roof of brand new BMW”
“Scarred for life by manicurist”
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NFL player Troy Polamalu gets $1m hair insurance
The long curly hair that sticks out of NFL Pittsburgh Steelers player Troy Polamalu's helmet has been insured by a shampoo company for $1m (£650,000). Shampoo maker Procter & Gamble took out the policy with Lloyd's of London.
“One in four UK SMEs suffer from bad debt” (source: Bibby Financial Services survey “30,000 small businesses in Carillion’s vast supply chain are owed money” Remember: Cash is King!!
Reduce Risk: Intellectual Property Protection
Helps to stop people stealing or using without permission
the names of your products or brands
your inventions
the design or look of your products
things you write, make or produce
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Mitigation of risk via Protection: Intellectual Property
Trademarks
Trademarks distinguish the goods or services of one trader from another.
They are ‘badges of origin’
Example: Cadbury has 593 trademarks registered with the UK IPO
Brands and Logos
Aunt Bessies = Wm Jackson in Hull
Arco – also in Hull
Bettys and Taylors – Wild family
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Patenting an Invention
Has to be original
Protects for a limited time
Many small firms don’t have resources to fight patent infringement
Alternative perspective
Open Innovation
(See Chesborough, 2003)
“When we share, everyone wins”
Creative Commons
“Creative Commons provides free, easy-to-use copyright licenses to make a simple and standardized way to give the public permission to share and use your creative work–on conditions of your choice.”
See https://creativecommons.org/
Security and cyber security
Useful info from gov.uk:
Small Businesses: What you need to know about cyber security
Particularly relevant if you intend to work with government or large corporations, or if you intend to run a web-based/`cyber’ business.
Must comply with Data Protection legislation
Mitigation of risk via contracts
Employment contracts
Legal requirement
Customer & Supplier contracts:
Standard forms of contract (obligations , payment terms etc)
Consistent with business model and values
MoU
Mitigation through Professions
Accountancy and the law are professions. For SMEs, finance and law can be a minefield to navigate.
Businesses can outsource functions such as payroll, book-keeping and employment advice.
Many consider it worth the expense.
Gives an easy point of contact for professional advice.
Can save money with good tax advice
Signals quality if professionals are well chosen
Can save costs of unwittingly breaking employment law!
Legal Responsibilities
Employers must "ensure, so far as is reasonably practicable, the health, safety and welfare at work" of all their employees. (Health and Safety at Work Act, 1974)
E.g. You could be fined or go to prison if you don’t follow fire safety regulations
You may need a license (see https://www.gov.uk/licence-finder)
Employer liability insurance is a legal requirement to cover you if something goes wrong.
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Legal Obligations
As Employers
To Customers
To Anyone who comes on your premises
Safety of products
Tax
Licenses
Ethical Responsibilities
To Employees
Society
Environment
Anyone who comes into contact with your business
Relevance for your business plans:
Demonstrate an understanding of the context industry, environment etc within which your enterprise will operate
Identify potential risks and explain treatment (eg mitigation)
People
Satisfaction, Loyalty, Profitability
Heskett et al (1994)
‘The Service-Profit Chain’
Profit and growth are stimulated by customer loyalty.
Loyalty is a direct result of customer satisfaction.
Satisfaction is due to how valuable the services are.
Value is created by satisfied, loyal, and productive employees.
Employee satisfaction results from having support services and policies that allow them to deliver results to customers.
Link to previous lectures:
Therefore, profit and growth requires getting it right ‘behind the scenes’ as well as having an attractive product, advert, fancy marketing campaign, etc.
The entire ‘blueprint’ needs to be right.
The critical importance of service employees
They are the service.
They are the organization in the customer’s eyes.
They are the brand.
They are marketers.
Their importance is evident in:
- the services marketing mix (people)
the service-profit chain
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They are the service, they are the face of the firm.
in many cases, the contact employee is the service
- we often DO NOT DISTINGUISH between the person and the firm
(haircutting, child care, counseling, legal services)
in these cases, the offering is the employee
- other examples?
They are the organization in the customer’s eyes.
employees represent the firm to the client
may be the ONLY contact they have with the firm
e.g., Dixon Pest Control
everything they say and do can influence perceptions of the organization
even “off-duty” employees can influence perceptions
They are marketers.
they are walking “billboards”
they represent the company and influence customer satisfaction
they are salespersons
(waiters selling dessert; AT&T operators cross-selling)
In this context, marketing is relevant to everyone and too important to just be left to the marketing department or sales staff!
The Service Talent Cycle
“Although innovation cannot be touched, heard, tasted or seen it can be felt” (Ahmed, 1998: p30).
“Post-industrial organisations today are knowledge-based organisations and their success and survival depend on creativity, innovation, discovery and inventiveness.” (Martins and Terblanche, 2003: p64)
Culture is “the way we do things around here” (Lundy and Cowling, 1996)
Innovation, Creativity, Culture
Source:Martins and Terblanche (2003:70)
Influence of organisational culture on creativity and innovation
Relevance for your business plans:
What are the key roles in your organisation and how will they be structured?
How will you recruit, remunerate and retain your talent?
What is your target organisational culture?
Next Steps
In your team, develop and refine your venture
Remember to apply the concepts and also to research the costs.
Attend your timetabled seminar.
Next week: Guest Speaker, George Winfield. Award winning entrepreneur and CEO of Spyras
Tuesday, February 14, 17
Next Week
George Winfield – multi-award winning entrepreneur and CEO of Spyras
You will have the opportunity to ask questions via mentimeter – consider what you can ask to help with your business plan
Reading
Burns, P. (2014). New Venture Creation
– A framework for entrepreneurial start-ups.
Basingstoke: UK. Palgrave Macmillan
Chapter 9: Legal Foundations
Chapter 11: Managing & Leading People
References:
Chesbrough, Henry W. (2003). "The era of open innovation". MIT Sloan Management Review. 44 (3): 35–41.
Re Floods:
Flooded_York_shop_couple_face_£30000_losses
Floods and Liability Insurance
Simple Health and Safety Insurance
Other Useful Reading
