MORE IDEAS FROM THE ARTICLE
But those who routinely examine the way risks propagate across the entire value chain are better prepared for second-order effects.
Most companies only examine the most direct risks facing a company and tend to neglect secondary risks that can have an even greater impact.
Companies need to learn to evaluate aftereffects that could weaken whole value chains.
Risk analysis focuses all too often only on direct threats. The classic domino effects linked to supply chains include
Indirect risks can also hide in distribution channels. It may include the inability to reach the end customers, new distribution costs or redefined business models.
The most complex domino effect is the responses from customers.
The shift in buying patterns can create a typical cascading effect. Another is changed demand levels.
Considering the impact of a risk on a company and how it propagates through the valued chain can help management think through the change. For example, the risk posed by carbon regulation on the aluminum industry.
Companies should gain a clear understanding of the way each employee and team do their present work and involve them in redesigning their roles and ways of working. It will spark better ideas and ensure pain points will get addressed early on. It will also create stronger skill matches and smoother transitions.
When organizations introduce new work, outside-in analytics and expert input can also help to find answers.
Finance has its own heuristics in a time of uncertainty.
Companies should use data and information technologies to regularly run scenarios to review and challenge economic, business, and sales projections.