Zero basing is an intrinsically radical approach involving new and challenging ways of rethinking the cost base. But how can companies manage the attendant risks while avoiding blocking good ideas?
In this, the second in a series of articles, we discuss how to balance risk and value. Through our zero basing experience across multiple industries, we have observed three key risk management challenges and recommend appropriate responses.
Establish a simple, consistent framework for classifying and rating risks
By its nature, a zero basing project raises many opportunities to optimize costs and investments. Leaders need a standard way of assessing risks associated with identified opportunities, and need to routinely challenge employees to debate the scale of benefit versus the associated risk.
Quantify the risk-value trade-offs
This involves embedding a data-led methodology to directly compare risks with potential benefits, taking into account the specific commercial and operational needs of each asset and/or business unit.
Make decisions at the right level in the organization
A successful zero basing program builds ownership throughout the organization, by putting people at the heart of the process and empowering them to take key decisions wherever practical. This involves separating accountability for generation and selection of options.
A successful zero based program tackles difficult risk issues head-on with a simple, consistent and transparent approach, taking emotion out of the discussion.
Six questions executives leading zero basing programs should ask in order to keep value 'on the table’:
- Where is your organization on a scale from ‘risk-averse’ to ‘risk taker’?
- How have current commercial pressures shaped your risk appetite?
- Do you understand the full risk-value trade-off associated with each cost-saving opportunity?
- How would you decide between different, but equal-sized opportunities?
- Have you empowered your teams to come up with radical options and unconstrained thinking?
- Who will take the key decisions regarding cost and investment opportunities?