Page 136 - Performance Leadership

Chapter 8 Balancing Performance and Risk • 125

F igur e 8.2
Heat Map

High

$ x
Risk Probability

-- ?

Low
Low Risk Impact High

be in place to deal with the risk if needed. Lastly, risks with a high prob-
ability and high impact should be mitigated or, even better, eliminated.
These risks require an active approach to steer the organization clear.
To fuse the heat map with performance management, you can plot
strategies, objectives, or improvement initiatives instead of mapping
risks. The risk dimension indicates the strategic risk: the chance that
these strategies, objectives, or initiatives do not help the organization
to reach its goals. Consider a fictitious family-owned midsized funeral
business in a rural region, called Baker and Sons (B&S). Although busi-
ness is relatively stable, margins have gone down due to large nation-
wide funeral businesses lowering prices. In order for B&S to stay
profitable, it needs to explore different directions for growth and cost
savings, to protect its bottom line. Figure 8.3 shows a number of possi-
bilities plotted in a heat map.
B&S could start saving costs on the funeral services. It would cer-
tainly contribute to the goals, but the risk has a high impact—
decreased quality of the service. It is hard to win from large competitors
with an operational excellence model; it is probably better to differen-
tiate based on high quality. Saving costs here would lead to a high
strategic and reputation risk. B&S could improve its personalized serv-
ice and cater for very specific cultures and religions. The margins on
these tailored funerals are probably much higher, and the infrastructure