Step 5: Make
a Choice and
Assess the Risk

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After analyzing all the data on your various alternatives, you need to choose the alternative that seems to be the best, and then assess any risks associated with it. By assessing the risks, you can decide how you might mitigate them and whether you should modify your recommended course of action to reduce the risk.

Selecting the best solution

Once you’ve compared the pros and cons of your alternatives, you’ll need to select the best possible solution—and justify your choice. Some companies track data on how various metrics affect their overall financial performance (for example, how customer satisfaction influences sales). If your company has this information and you can attach dollar figures to each of your metrics, then your selection process may be as simple as adding up all the numbers and making a comparison.

However, you probably won’t have all of this information at hand. You’ll need to come up with a strategy for making your choice. This isn’t an exact science, so you’ll have to rely on your intuition and best judgment, as well as input from others. Remember to document your rationale so you can explain it to others later.

In the Satellite example, Sydney reviews her pros and cons table and identifies the choice whose benefits she thinks best outweigh the costs: hiring the consulting firm. She reasons that this option would

• Generate the highest revenue increase in the quickest time.

• Give the company access to expertise that would reduce the risks inherent in introducing a new selling strategy.

• Yield the highest increase in customer satisfaction.

• Improve sales employee satisfaction and thus reduce turnover (and possibly attract talent) in the long term.

What Would YOU Do?

Business Is A-Buzz at BuzziBee Learning

LAURA IS A PRODUCT MANAGER at BuzziBee Learning. Her division produces BuzziReader, a series of online reading products used in elementary schools. For the past three quarters, her product line’s sales have remained flat, so Laura is looking for ways to grow revenues to stay competitive.

Laura believes there are many alternatives for increasing BuzziReaders’ sales. For example, the BuzziReader product line could be sold into new markets. Or, the company could create product-line extensions such as printed workbooks to accompany their online products.

Laura builds a strong opportunity statement: “The BuzziReader product line needs to identify the best approach for increasing BuzziBee Learning’s revenues.” She then convenes a workgroup to explore alternatives for increasing revenues. The group brainstorms a full range of possibilities and then narrows the options to the following:

• Translating BuzziReader products and selling them in new international markets

• Developing a set of BuzziReader workbooks to be used in conjunction with the online programs

• Trying to get the sales force to sell more aggressively in its current markets (the status quo)

Next, she meets with her boss, Martin, to get his input. She learns that he has been interested in BuzziBee getting more involved in overseas markets. He is less enthusiastic about developing workbooks and is not optimistic that pushing the sales force to sell more aggressively would be successful. Martin encourages Laura to explore the options and to “build her case for key decision makers.” She wonders what this means, exactly.

What would YOU do? The mentor will suggest a solution in What You COULD Do.

Weighing the risks

Once you select an option, identify the potential risks to you and the organization before you commit to it. Think about the risks to the following:

• The implementation of your idea. Do you have the right people to accomplish the necessary tasks? Can you meet the necessary schedule with your resources? What would happen to the organization if you cannot meet your goals and timelines?

• Your peers and organization. What would happen to your peers and the organization if you don’t make the numbers you expected? For example, if your projections are built into your organization’s metrics and are rolled up to the corporate commitments for the head of sales, could his or her career suffer if you don’t achieve the projected gains? Are there other risks in terms of members of the sales team leaving the organization once they have higher skill levels?

• You. What are the possible career consequences if your alternative fails? For example, depending on the size of the project and the amount of resources you need, your performance rating might be affected, you could lose credibility, or you could be let go.

Also consider your personal tolerance level for risk, as well as your organization’s tolerance level. In addition, ask someone in your finance department to help you analyze what would happen if you changed some of your assumptions or your estimates changed. This process is known as sensitivity analysis. For example, what would happen to your organization’s bottom line if sales revenue increased only 5 percent instead of the 15 percent you predicted—or if it increased by 20 percent? You might decide that the alternative you’ve chosen to advocate would no longer be feasible.

Another way to conduct a sensitivity analysis is to describe a worst-case and best-case scenario, and to share both of them in your business case.

What you have to do and the way you have to do it is incredibly simple. Whether you are willing to do it is another matter.

—Peter F. Drucker

Deciding how to mitigate the risks

Consider how you might mitigate the risks you’ve identified. For example, in the Satellite scenario, Sydney reasons that hiring contractors is time consuming: she may not be able to find anyone with the right expertise to do this type of project right away. Therefore, this alternative poses the risk of delaying revenue gains three to six months beyond the consulting option. If this occurred, the sales group wouldn’t meet its target numbers for the year. Sydney considers whether to eliminate this option, even though the cost of hiring the contractors would be far less than hiring the consulting firm.

Sydney also thinks about the risk inherent in negotiating the contract with the consulting firm. The consulting firm might want more than $2 million to do the work. To mitigate this risk, she considers using Satellite’s best negotiator or even involving her company’s vice president of procurement to ensure a well-handled negotiation.

Determining whether to modify your recommended course of action

Deciding how you mitigate risks helps you refine your recommendation even further. If two of your alternatives offer roughly equal benefits, you may want to compare their risks. If your initial recommendation is too risky, you may decide to modify it or even abandon it for a different alternative.

For example, based on her initial analysis, Sydney was leaning toward the option of hiring two contractors. But after considering the risks, she thinks about hiring the consulting firm instead and then hiring two contractors to maintain training and support for sales.

Also keep in mind that for any alternative that requires an increase in headcount or budget dollars, your request for additional resources could be denied. Prepare another option, even if it seems less desirable. Clearly define the negative impact and missed opportunities that would result if resources were not allocated toward your project.

In Sydney’s case, if her request for funding to hire the consultancy is refused, she might have to resort to using her own people to implement the new training. She would then be forced to drop several projects so her staff could take on the new project without becoming overloaded. This decision would be especially problematic because her boss has told her that no current projects could be eliminated or delayed.

“Steps for choosing a final recommendation” offers more guidance on this step.

Steps for choosing a final recommendation

1. Select a preliminary recommendation. Review the alternatives you’ve developed. Compare and contrast their pros and cons. Which of your alternatives best supports your organization’s business objectives? Which of these stated objectives are most important to your organization? Think about whether one option would be easier to implement than the others. Also, be sure to weigh unquantifiable factors. For example, if the return on investment is similar for two alternatives, you might want to give more consideration to strategic fit when making your final decision. If you have difficulty narrowing your choice to one option at this stage, you can keep the two best options and work from there.

2. Document the rationale for your decision. Once you’ve made your decision using your best judgment, it is important to explicitly document the rationale for your decision. Do this as soon as possible to avoid overlooking any aspect of your decision-making process. Try to create a concise bulleted list of the four to six primary reasons why you selected your option(s) so you will be able to explain them succinctly to stakeholders and decision makers.

3. Consider the risks. Identify the potential risks to both you and the organization of implementing your recommended choice(s). Consider any risks related to your career, the implementation, and your projected numbers. Also consider running some sensitivity analyses to see how your numbers would change using different estimates or assumptions.

4. Look for ways to mitigate the risks. After you identify risks, think about how you can mitigate them. For example, could you start with a pilot project to test your assumptions before launching a full-scale implementation? Also, consider whether you have control over the risks associated with your recommended alternative(s). For example, would either fail if a competitor lowered its prices or if the price of a raw material you use in manufacturing increased?

5. Revisit your original recommendation. Think about how desirable the outcome of your recommended option(s) would be. For example, would your department’s morale increase significantly as a result? Then think about how likely the stated outcome is to occur (i.e., how many risks did you identify and how likely is it that you can control them?). Keep in mind your personal tolerance for risk and also that of your organization. If you have been considering two options until this point, consider which one makes the most sense in light of these factors. It’s possible that you might find that yet another option (possibly a combination of alternatives) is actually the most desirable.

What You COULD Do.

Remember Laura’s question about how to start building her case with key decision makers?

Here’s what the mentor suggests:

What Martin means is that Laura will need the support of key decision makers and stakeholders, such as the directors of sales and finance, to eventually implement her final proposed course of action. For example, to get the money she needs, she’ll have to persuade the directors of sales and finance to support the project. If the directors will be budgeting for the coming year in the next few weeks, Laura will need to get her idea to them quickly.

She shouldn’t hold off on these preliminary discussions with key stakeholders just because she doesn’t have a formal proposal developed yet. By talking with the directors of sales and finance early, she might learn important information that would help her assess her options. For example, a conversation with the director of sales might reveal any existing contracts the company has with international distributors. A chat with the director of finance might unearth the fact that there’s less money available for some options than for others.

Laura should also identify any other stakeholders whose collaboration would be critical for successfully implementing her initiative and try to meet with these individuals early in the process as well. These could include people who would have to carry out key tasks in her initiative, such as writing translations, developing workbooks, or stepping up sales efforts.

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