Have you ever been in the room when someone suggested doing scenario analysis? Did you see everyone in the room cringe at the thought?
I have, and I felt pity for the person who made the suggestion.
Most likely, everyone in that room has gone through the endless “what if” scenario analysis that takes 4 or 5 hours and ends without any solid conclusions.
But if done correctly, scenario analysis can be extremely effective in its support of decision-making.
Personally, I prefer to use the term “scenario planning” instead of “scenario analysis” for the simple reason that “scenario analysis” sounds painful and very computer-driven. On the other hand, scenario planning is human-based and sounds like the effort and results will be useful for the participants and the final audience.
At its core, scenario planning is a “creative and structured process to guide deliberate thinking about risk,” as defined by Aries de Geus in his book The Living Company. De Geus, as the corporate planning coordinator at the Royal Dutch/Shell companies, used scenario planning and described its effectiveness in this Harvard Business Review article…from 1988!
So, with all that being said, how can scenario planning support decision-making?
1. Tests and validates assumptions being made as part of the planning process
When corporate planning occurs, whether called strategic planning, annual planning or something else, management believes that a certain set of assumptions will become true. How many times has management stated an assumption as fact? But what if they are wrong?
2. Provides management with the tools to proactively prepare
Risk management activities are supported by scenario planning, which looks at possible events. While most people inherently want to say the most positive event will occur, proactively preparing for events is always better than being reactive. Being proactive rather than reactive is a key difference between traditional risk management and ERM.
3. Encourages innovation
Scenario planning helps people to think outside of their comfort zone, taking next steps to a big innovative moment. Sometimes that innovation is triggered by the proactive preparation. An organization that is constantly innovating is a step ahead of its competitors.
4. Gives the organization a competitive advantage
Being prepared and innovative are two enormous parts of a competitive advantage. What company would not want that?
Management improves its way of making decisions simply by using scenario planning. It will take time for this way of thinking to take hold, but it stands to reap immeasurable benefits in both the short- and long-term.
After all, de Geus believes that scenario planning is the reason there are companies that last for 200 and 300 years. From the same Harvard Business Review article,
Sociologists and psychologists tell us it is pain that makes people and living systems change. And certainly corporations have their share of painful crises, the recent spate of takeovers and takeover threats conspicuously among them. But crisis management—pain management—is a dangerous way to manage for change.
Once in a crisis, everyone in the organization feels the pain. The need for change is clear. The problem is that you usually have little time and few options. The deeper into the crisis you are, the fewer options remain. Crisis management, by necessity, becomes autocratic management. The positive characteristic of a crisis is that the decisions are quick. The other side of that coin is that the implementation is rarely good; many companies fail to survive.
The challenge, therefore, is to recognize and react to environmental change before the pain of a crisis. Not surprisingly, this is what the long-lived companies in our study were so well able to do.
All these companies had a striking capacity to institutionalize change. They never stood still. Moreover, they seemed to recognize that they had internal strengths that could be developed as environmental conditions changed.
Don’t you want your organization to be around for 300+ years? Embedding scenario planning into management’s decision-making processes will help make that happen.
Author: Carol Williams
Source: ERM Insights
An often overlooked part of the massive losses suffered by businesses, academic institutions, and other organizations as a result of fires, floods, and other severe weather is the damage to critical records and documents. By not protecting and ensuring these documents, organizations can face significant business continuity losses and compromised client services. There are several important steps that prudent risk managers can take to ensure that their critical documents are managed properly and protected as much as possible from a potentially damaging event.
1. Understand Document Retention Requirements and Dispose of Unnecessary Documents
Document retention requirements are determined by city, state and federal regulations, and can vary by document type. A general rule of thumb is that financial records should be kept for seven years. Health records for children must be retained for 25 years. Deeds and loan documents must be kept permanently. Establishing a consistent base volume of stored records and documents can help determine the necessary level of insurance coverage. The longer the retention period, the greater the risk so purging those documents that are not necessary to retain can reduce the risk that damage will occur.
2. Assess Document Exposure
Determining the level of document exposure depends on the answers to several questions. First and foremost, what is the volume of critical documents? The more documents stored, the greater the cost to insure them. The more densely they are stored, the greater the localized risk.
What type of recovery service is necessary? This answer will vary from business to business. If original documents are required, they will likely be returned after drying and cleaning with visible signs of damage, such as stains and bleeding of ink. This may be fine for archived files but may cause problems for businesses such as medical facilities, law and accounting firms, and their clients. In another instance, a mortgage title company may likely want a drying, sterilization and cleaning option even when their documents are affected by Category III water (highly contaminated water such as sewage or floodwaters, also known as blackwater). Faced with the same dilemma, a medical facility is likely to prefer reproduction or imaging.
Is immediate access to documents important in the wake of a calamitous event? This will determine which of the two basic techniques for document drying is most appropriate. Vacuum freeze drying provides the best results for books and clay-coated paper. However, capacity is limited by the size of the drying chambers and backlogs can quickly develop if a document recovery specialist relies solely on this method. Desiccant drying effectively processes large quantities of documents, but causes wrinkling and requires trained technicians to avoid secondary damage to documents during the recovery process.
The information gleaned from the answers to these questions can be extremely useful in determining the potential cost of document and record restoration. However, there is no standard formula or computer model to generate cost estimates. Instead, the number of documents required for retention and the qualitative requirements of that retention is used to develop a hypothetical, industry-average cost estimate for a worst-case scenario loss.
It is important to remember, however, that any assessment of this kind cannot determine the cost of a total loss. Establishing the cost of drying 100 boxes of documents submerged in water for two days is doable. Understanding the cost of recovering those 100 boxes after they have been burned to ash is not.
3. Ensure Adequate Insurance Coverage
The cost of insurance is typically determined by the cubic feet of stored documents and records to be covered. A range of $100 to $1,000 per cubic foot can provide a general low-to-high estimate of coverage needed. Depending on the potential needs within that range, the type of coverage is another critical consideration.
Many insurance policies will specifically exclude coverage for documents under the contents verbiage of the policy. Instead, insurers want customers to address specific coverage of documents under the valuable papers portion of the policy. Valuable papers coverage is often described in the policy as the time to research, verify, and recreate files or information that have been damaged in a loss. Valuable paper coverage is broad and often will address the issue of document reproduction or imaging.
Valuable papers coverage is a reasonable “extension of coverage” on insurance policies, with coverage amounts ranging from $25,000 for standard coverage to several million dollars for specialty classes of businesses. Standard limitations may be adequate for small losses, but most likely will not be adequate to cover a major loss that would require the treatment of large numbers of documents. Ironically, the rule of thumb in the document restoration business is that the average client is under-insured.
Often, the key variable is how the adjuster will interpret the policy. Some adjusters will allow drying and cleaning documents to fall under business personal property coverage because the documents are tools used for conducting business. This enables the original documents to be dried and/or cleaned and returned to use. The argument is documents such as medical charts are not just valuable papers or papers per se. The information on them is organized, regulated in how it can be amended or altered, and the charts must be bound in a specific manner.
An important element of adequate insurance coverage is the quality of the claims handling process, which can be defined as the immediate response to the loss. Specific wording to this effect in the insurance policy will help, as will periodic meetings among the insured customer, insurance professional, and document restoration firm over the course of the policy period.
4. Preselect the Right Document Recovery Firm
There are only a handful of qualified document recovery firms in the United States. Preselecting one of them is not a process that should be taken lightly. Risk managers, who are serious about defining their exposure, should conduct in-person interviews with key document specialists — as opposed to area representatives or salespeople — from the firms they are considering.
There is no standard pricing in the document recovery industry. Basic services are typically measured by the cubic foot. However, one firm may charge $40 per cubic foot for drying and $35 per cubic foot for labor, handling, and packaging, while another will charge an all-inclusive $72 per cubic foot for these services.
There are a number of differentiators among these firms in addition to price. Do they have the capability to handle a document restoration project on-site if necessary? What security measures do they employ — both on-site and in their plant? How quickly can they respond to a loss and provide a complete quote for the work? What is their backlog? Can they provide access to documents during the recovery process? Do they do the work in-house, which is preferable to ensure a timely response and open lines of communications between client and document recovery firm, or do they subcontract to another vendor? Do they itemize invoices, including all services and supplies? Are they appropriately insured, including sufficient pollution coverage?
Lastly, there are a number of external signals about a document recovery firm’s qualifications. Firms that are preferred vendors with well-known national insurance carriers have qualified on the basis of security, financial stability, quality control and accountability. Letters of recommendation from previous clients is also a good indicator of past performance.
Source: Risk Management Monitor
Author: Rob Schmidt
A first question of course is who should be laid off. While this is largely a management decision based on which positions are the most important to future financial stability, an important HR component is making sure that the layoffs don’t put the organization at risk. Check the personnel handbook for policies that address layoff and/or severance pay, and check to see whether employees marked for layoff are on any kind of protected leave (such as family or medical leave, workers’ compensation leave, or pregnancy disability leave). If possible, speak with an HR or labor law attorney about employees on protected leave.
In most community nonprofits there aren’t, for example, 15 people holding the same position of Social Worker I, with an intention to lay off 3 of these employees. In such an instance, though, it will be important to clarify whether the layoffs are being made based on seniority, on merit, or on a combination of factors. Most organizations would prefer to lay off the least meritorious individuals with the least seniority. The nonprofit should check past evaluations and documentation of performance in order to avoid discrimination claims. For most community nonprofits, however, it will be clear that a position is being eliminated, rather than an individual being selected for poor performance. In all cases, document the whys of each decision you make, perhaps with business necessity as the main theme and with merit and seniority as considerations.
A few specific tips:
- Determine whether your organization is subject to either federal or state Worker Adjustment and Retraining Notification (WARN) regulations. Generally applicable if you have 100 or more employees, and for layoffs of 50 or more employees or 1/3 of your workforce, WARN requires 60-day layoff notices and other steps.
- It’s generally better to do a deeper layoff once than to lay off a few people at a time in dribs and drabs: the staff who remain need to feel confident that they will stay on their jobs.
- Most professionals recommend that individuals finish the day or the week after hearing about being laid off, but not longer than that. It’s usually difficult for the laid off employee to feel positive about work, and others may feel awkward around them. (See Layoff Stories from Blue Avocado Readers for examples.) But it will be key to discuss how the employee’s clients or projects will be managed after his or her departure.
- Letting people know on a Friday will give them the weekend to absorb the news.
- Have a FAQ (frequently asked questions) sheet for people who will be giving layoff news, such as what references can be given, how long the employee will have access to his organizational email account, how will her clients be notified of a change in organizational contact, and so forth.
- Give layoff information face-to-face. Don’t tell the employee how hard this is on you. Give the employee a chance to ask questions. Let them know how long their insurance benefits will continue, that they will be receiving the required COBRA (option to continue their health insurance), and unemployment insurance information. Tell them what other support the organization can provide them (such as employment references, severence pay and so on). Employees should also receive most of this information in a formal letter. (We’ve posted a sample layoff letter as a guide.)
- After layoffs have been announced, managers may be tempted to retreat to their offices and look buried in work, but encourage them to circulate with the staff, ask and answer questions, and demonstrate confidence.
Temporary layoffs, furloughs, and temporary shutdowns
Nonprofits tend to consider only permanent layoffs. Sometimes short-term layoffs can be effective ways to save jobs while protecting the organization’s financial status. For example, there may be an unexpected two-month gap between the completion of one government contract and its renewal. In the past, your organization may have been able to keep paying the individuals on that contract during the gap, but this time you may need to lay them off, letting them know that if the renewal comes through they may be called back within several weeks. However, check your state laws to see if you are required to pay out all accrued vacation if you close down for a week or more. We know of at least one nonprofit charged with violating such a requirement that had to pay substantial fines and penalties before it reopened its doors two weeks later.
A furlough is specified unpaid leave, such as workweeks reduced by one day, or months reduced by two full days each. Typically employees request the days they would like to use for their furloughs. In effect, furloughs change full-time positions into slightly part-time positions for non-exempt staff. Some furlough tips:
- Exempt employees cannot be paid for less than a full week if they have worked any day that week (remember that obscure definition of the workweek in your personnel handbook?), so furloughs don’t reduce payroll costs for exempt staff. What you can do, however, if you are furloughing exempt staff for one day per week, is to reduce their full-time salaries by 20%.
- Be clear whether employees will continue accruing vacation and receiving benefits at their full-time levels (typically yes), and whether an employee taking a furlough on a holiday will still be paid for the holiday (typically no).
- Keep in mind that some international staff on H1-B visas may need to work a certain number of hours a week to be eligible to work in the United States.
- Remind employees whose wages are being garnished or who have deductions for child support that these amounts may be affected.
Some nonprofits pick a slow week (perhaps Fourth of July week, school spring vacation, etc.) to close down. Closing for a full week allows the organization to save on both exempt and non-exempt payroll (remind exempt employees that they cannot do any work that week — even checking their work email — lest they trigger a legal requirement to pay them for the full week). Some employees may find this a relatively easy cut to accept, but for others, even a one-week closure may result in a loss of pay that is untenable. Give employees the option of using their accrued vacation pay during the shutdown or taking the week off as unpaid leave, otherwise you may be required to pay out all accrued but unused vacation.
Finally, remember that many, many nonprofits (and for-profits) are feeling the pinch. Reach out to contacts in other nonprofits to see how they’re handling things, and to identify local resources for people losing their jobs. And post a Comment below to let Blue Avocado readers know your ideas and tips.
Source: Blue Avocado
Author: Pamela Fyfe
Recently, I had the chance to spend some time at Walt Disney World in Orlando, Florida, when I attended the NAMIC conference in February. One session included a presentation by Barry Dillard, director of claims for Walt Disney World, where he shared the company’s approach to handling a wide variety of claims.
I sat down with their vice president of risk management to learn about some of the strategies they employ, and I had the opportunity to tour Walt Disney World itself to peek behind the curtain and see how this massive theme park creates the magic for its guests and cast members, while keeping everyone safe.
Believe it or not, the Walt Disney World Resort covers 40 square miles and is twice the size of Manhattan. Within its confines, this world-class attraction employs 75,000 cast members, each of whom play a critical role in spreading the Disney magic. Their emphasis on safety is both taught and caught, which is especially important when serving the millions of guests who visit the Disney attractions around the world.
The Walt Disney Company is extremely proactive in their risk management strategies — it truly is everyone’s responsibility — not just the realm of those at the corporate level. As is often the case in life, the simplest things can make the biggest difference. Merely walking the parks, hotels, shops and restaurants can yield valuable information, allowing cast members to identify small issues before they become larger ones. Even in one of the most magical places on earth – reality tends to intrude.
Unexpected risks arise every day and training plays a key role in mitigating them. Hackers are constantly devising new ways to access company information or hold it for ransom. The use of ransomware is expected to increase 350% this year, so being vigilant and backing up data has never been more important.
The number of shooting incidents in businesses and other settings is increasing at an alarming rate. Knowing what to look for and how to respond in these situations can literally be the difference between life and death.
For better or worse, new risks are changing our behavior — how observant we are in open spaces of our surroundings, what we post on social media, where and how we protect our personal information, what we open online and how we train our staffs. It really is the smallest things that can make the biggest difference in keeping people safe.
Author: Patricia L. Harman