Page 138 - Performance Leadership

Chapter 8 Balancing Performance and Risk • 127

An option without much risk is to hire younger, more sales-oriented
staff. The impact of such a campaign failing is neutral, it returns the
company to the as-is situation. However, there is no reason why B&S
couldn’t do that in combination with most of the other options. The
last option could look into other areas of its cost structure. For instance,
if B&S sponsors the local theater, it could look to withdraw sponsor-
ship. The risk of it is not high, but the contribution to the result is also
not very high.
This exercise helps assess the risk of every performance improvement
activity, instead of purely calculating the contribution to the goals.
Instead of a single risky initiative, it might also be possible to construct a
portfolio of multiple performance improvement initiatives, each without
significant risk, which together can fully contribute to a positive impact.
However, to completely fuse performance management and strate-
gic risk management, it is not enough to infuse elements of perform-
ance management into risk management or vice versa. An integrated
tool for decision management is needed. Where performance manage-
ment techniques are too positively oriented (not taking risks into
account), risk management techniques are too negatively oriented
(impact is about what happens if things go wrong). A performance/risk
map solves both problems. The performance/risk map, like a heat map,
has two dimensions. The vertical dimension is the risk dimension,
which ranges from low to high. It shows how risky an initiative is. The
horizontal dimension is the performance dimension, which also ranges
from low to high. It shows the positive impact of an initiative and to
what extent it contributes to the bottom line. See Figure 8.4.
Different organizations have different risk appetites. The more risk
averse an organization is, the more the middle line could be drawn low
on the risk dimension. Different organizations also have different lev-
els of ambition. Highly ambitious organizations can draw the line high
on the performance dimension. It creates four quadrants, each poten-
tially with a different size. Initiatives with a high risk and low perform-
ance contribution are a no-go area, and they should be avoided. Where
there is acceptable risk but not the expected return, the initiatives may
be part of the solution, but by themselves they do not deliver enough
of an improvement. Options that provide the full return but at a
high risk, pose a dilemma. If things turn out well, you will reach your