Page 131 - Performance Leadership

120 • Part II Operational and Analytical Dimensions

stakeholder objectives and tries to bridge them, to create a win-win situ-
ation. However, it would be short-sighted to assume that every part of the
strategy goes according to plan. There will always be things that go wrong,
and it would not be good if every deviation from the original plan were
to come as a surprise. Up-front planning, involving scenario analysis of
what could go wrong and how to deal with it, improves the speed of reac-
tion if indeed something does go wrong. As the famous axiom states, “You
cannot predict the future, but you can be ready for it.”
Strategy maps actually recognize that idea by putting together cause-
and-effect relationships between performance indicators. Early warn-
ing signals at the bottom of the strategy map indicate that strategic goals
at the top of the strategy map might not be reached. However, strategy
maps can never be exhaustive. In reality, it will always be an unantic-
ipated factor that causes the surprise. Going through risk management
exercises creates knowledge of the various business scenarios that could
play out. And even if changes in reality are not the ones you predicted
or identified as a risk, the experience of dealing with risks enables you
to adjust faster with the unexpected ones too. Also, if things go wrong
within the list of anticipated cause-and-effect relationships, why would
you wait to address these risks until the first indicators start to light up
in red? That’s why performance management and risk management go
hand in hand.
Enterprise risk management is a process established by an entity’s
board of directors, management, and other personnel that is applied in
strategy setting and across the enterprise. It is designed to identify poten-
tial events that may affect the entity and to manage risk so that it is
within the entity’s risk appetite, to provide reasonable assurance regard-
ing the achievement of entity objectives. 1
There are different types of risk: financial risk, operational risk, rep-
utation risk, and strategic risk. Interestingly enough, this is very close
to the perspectives of the balanced scorecard. Financial risk and finan-
cial performance are related; operational risk matches the process per-
spective; reputation risk is related to the customer perspective; and
strategic risk can be linked to the growth and learning perspective.
Most performance management methodologies are “closed systems.”
They either ignore risk management as a related discipline or try to fit
it into one area of performance management. Another way to look at