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A risk analysis is an integral part of business decision-making no matter what general management challenge you are facing. In this article, we look at the role of risk analytics in three different business management scenarios (and at the end we talk action):
Supply chain is a critical business function for both B2B and B2C businesses. The risk of having too much stock ahead of orders… well, picture a truckload of rotting fruit. And the risk of not having supply to meet customer demand? Picture angry customers in front of empty shelves before a long weekend.
For this reason, supply chain managers now use increasingly sophisticated tools to match stock to demand and analyze the risks involved. Statistical modelling tools map customer behavior patterns and detect changing demand ahead of the trend. This enables proactive planning – forecasting to ensure inventory levels are adapted through make-to-stock supply chain – and better flexibility in working capital. Companies that utilize their modelling effectively can respond rapidly to consumer market forces while keeping risk in check. Risk analytics tools allow for decision-making in terms of how closely to match trends.
One of the most important and sensitive business transactions is a Mergers and Acquistions (M&A) project. Seeing a successful M&A through to fruition requires planning and due diligence, particularly in terms of setting the appropriate strategy and integrating a robust risk analysis. IMD Business School Professor of Finance and Governance Didier Cossin says that the decision to embark on an M&A needs to be demonstrably based on the potential to achieve a clear business objective. He explains the importance of ensuring that the M&A is motivated by synergy – “the state in which two or more things work together to produce a state whereby ‘the whole is greater than the sum of its parts.’
Who is your competition? Chances are, your company does not have the same answers today as you did 10 years ago. The chief reason for this is something that IMD professors at the Global Center for Digital Business Transformation (DBT Center) call the Digital Vortex. Digital disruption is altering traditional competitive dynamics in virtually every industry. Your risk analytics cannot look only at your traditional competition risks – you have to contemplate risk from the never-before-seen and the extremely-rapid.
A thorough risk analysis should not be neglected in business management decision-making. As the three examples above illustrate, risk lies within daily business operations as much as in strategic growth moves. Risk analysis enables you to be prepared and take appropriate action in the face of competitors, including non-traditional ones. So take action – analyze your risk and leverage the information to reinforce your business agenda and drive results.
IMD Business School in Lausanne, Switzerland and Singapore has been ranked first in open programs by the Financial Times seven years in a row (2012-2018). IMD has been training global leaders for more than 70 years.
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