How Risky is Your

Company?

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1
Nissan Internal
 Introduction

How Risky is your Company? by Robert Simons of the Harvard

Business School. Its a more business oriented view on how
companies should handle risks, internally. But since internal risk
management can be seen as a part of supply chain risk
management. We will Include it here.

Risk exposure
This article is about how risky one company is. About the internal
risk. And by these risks, the author does not so much refer to the
production processes, but the softer risks of managing a company.
The key contribution of Simons is the Risk Exposure Calculator. Of
course not all risks are unintended. Most people would argue that
risk is part of doing business, so a good risk calculator would only
include the unwanted and unrecognized risks. It is also not the goal
to find one specific number to pinpoint the risks of a company, but to
give hints for improvement.

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Guideline for Managers

Managers need to
How to pinpoint
increase their
the areas of risk
level of internal
exposure?
risk exposure.

Two functions of risk

exposure calculator:
Can be used by
Using risk people from
exposure different level and
function
calculator Can be compared
between different
timeline

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 Risk Exposure Calculator
What Risk Calculator do?

Allow Executive to
Shows the Pressure determines if a
Point in Every companys risk level
Organization that lead is in the safety,
into increased risk. caution, or danger
zone.

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 Risk Exposure Calculator

Managers can calculate

Managers can their companys
ask people at current risk exposure
different What benefit Risk
and then what it
levels and Exposure Calculator can
would have been 24
indifferent do for Managers?
months ago
functions

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Risk Exposure Calculator

DUE TO GROWTH

Three
Internal DUE TO CULTURE
Pressures

DUE TO INFORMATION MANAGEMENT

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Risk Exposure Calculator

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Pressure Points due to Growth

Pressure for PERFORMANCE

Success REWARD
Fail NO SHARE IN BOUNTY

Rate of EXPANSION in OPERATION

Expansion = Capacity

Rate of EXPANSION in OPERATION

Expansion = Capacity

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Pressure Points Due to Culture

Entreprenurial Risk Taking

Risk taking = Daily Life

Bad News
Travel upwards to Management

Internal Competition
Decreased Information within company = Negative

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Pressure Points Due to Information
Management

Transcation complexity and velocity

Managers do rough calculation, what were complexity,
volume, velocity of information, etc.

Diagnostic Permormance Measures

Perormances measures are often neglected in times pf
growth

Decentralized Decision Making

Decentralized Decision Making = Improve Motivation and Performance.

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 Controlling internal risks
Simons Suggests ways to manage the above mentioned risk by focusing
on five question.

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 Conclusion

This article after all was more inward facing than we thought, but
nonetheless operational risks are an important part of every-day
business and of course strategic management. Operational risks
as described here probably became a little outdated due to some
unpopular initiatives as the Sarbanes-Oxley Act (USA) or BilMoG
(Germany), but there is a lot of potential for improvement and
Simons describes several good cases supporting his points.
The major conclusion from his research is the contradiction
between risks in times of high growth. All the risks Simons
presented are usually growing during the good times when the
business is growing. And many cases show that those risks can
be the reason why those companies went out of business after
the growth period was over.
This research can give us clues where improvements are
necessary and also shows levers to improve control within the
company again.

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