For any business, large or small, it is vital to assess and understand strategic and operational risks. Indeed, understanding the true extent and nature of risk increasingly separates winners from losers.
As for sustainable viability (SV) and its relationship to enterprise risk management (ERM), think of it as a framework to better quantify strategic, financial and operational risks, and through this understanding how to create opportunity for cost efficiencies and revenue enhancement. How to capture, create and deliver more value and serve customers better.
The framework holistically manages resource, environmental and social risks confronting the enterprise to achieve its organizational objectives and minimize unexpected threats and volatility to revenue and costs. It too challenges organizations to view risk as an opportunity for growth.
Since companies must hold capital to absorb the risk of loss, logically, there is less capital to invest in other profit producing activities. Therefore, sustainable viability helps companies to determine the right amount they should direct toward risk through better, more informed decisions. For example, factoring actual risks to assets in capital calculation is likely to yield opportunity to free cash for investment and innovation.
Furthermore, to aid this movement, functional heads must work in an open and transparent manner. It is amazing what is found when people across different disciplines are in the same room for such conversations. For example, with an enterprise I worked with, I brought together several managers into a single meeting, and it took just a few hours to uncover an opportunity for a 20 percent reduction in fuel use with mitigation of other associated costs and risks as well as elevated efficiency and revenue gains. The parties involved had all worked together for ten years and, in their own contexts, were high performing functional managers. The point: allow functional heads to come to a consensus and aggregate the risk drivers.
Therefore, sustainable viability is understanding the full extent of risk — top-down and bottom-up. See the externalities and how these risks might affect customer demand, and how this might impact serving customers and how these risks will affect your revenue. Such environmental and social risks and costs are rarely accounted for: even by those who see themselves as having a mature sustainability program. The point being, a sustainable viability program should not be outside strategic and operational priorities.
Furthermore, for effective sustainable viability the risks must be understood at a tactical level in order to explore all the opportunities. There needs to be sufficient information about the risk (emissions, waste, human rights, climate, environmental etc.). Once accepted as a risk, it’s necessary to understand of how it will be managed. So once a risk profile has been developed, quantify the risks in metrics and take into account trade-offs. For example, if a supplier catches a cold, how quickly are you going to get the flu?