Business capability mapping is a powerful tool for aligning your strategy, processes, and resources with your desired outcomes. It helps you identify the core competencies of your organization, the gaps and overlaps in your capabilities, and the dependencies and impacts of change. But how do you use it to manage risks?
Risk management is the process of identifying, analyzing, and responding to the uncertainties and threats that could affect your organization's objectives, performance, or reputation. It involves assessing the likelihood and severity of potential events, developing mitigation plans and contingency actions, and monitoring and reviewing the results. Risk management is essential for any business, especially in a dynamic and complex environment.
I would like to slightly adapt the definition as Risk management can also help to identify and explore opportunities: Risk management is the process of identifying, analyzing, and responding to uncertainties – threats as well as opportunities - that could affect your organization's objectives, performance, or reputation...
In order to implement adequate risk management in the organisation, it is recommendable to use the three lines of defence (LoD) model. This would ensure 1LoD, the business, is responsible for actively managing risks while 2LoD are independent control functions providing risk opinions and risk assessments to management. 3LoD is the audit function performing reviews over 1 and 2 LoD.
Business capability mapping can help you manage risks by offering a holistic and structured view of your organization's strengths, weaknesses, opportunities, and challenges. By mapping your capabilities, you can ensure that your risk management strategy is aligned with your business vision and goals. Additionally, it can help you identify the critical capabilities that enable or constrain value creation and delivery. It is also useful for evaluating the current and future state of your capabilities, and the gaps and redundancies between them. Furthermore, it can assist in prioritizing the capabilities that need improvement or transformation and assessing the risks associated with each capability. Finally, it can help you design and implement risk mitigation strategies and actions to measure their effectiveness and outcomes.
Business capability mapping will also benefit the identification of the most critical business assets and processes but could also be seen as a way to identify risks to the clients or markets served. This provides an outside view for the organisation when dealing with many kinds of risks helping to prioritise and make more sound risk decisions.
From my perspective, business capability mapping serves as an essential risk management instrument, enabling organizations to pinpoint vital capabilities, evaluate interconnections, measure risks, allocate resources efficiently, craft business continuity strategies, and make well-informed choices, all while maintaining constant performance oversight. These collective capabilities empower proactive risk recognition and mitigation, thus safeguarding business resilience and fostering sustainable growth.
Businesses have a multitude of different areas that come together to deliver the overall purpose of the organisation in the first instance be it a service or a product. Each area within the business often operates as it’s own SME with its relevant skill sets. However, looking at it in silo does t give the full picture of risk exposure the business faces. It also doesn’t show the impact one risk could have on another area. What could seem a benign risk in one area could be a material risk in another. Mapping allows for this to come through. To see the full picture, enabling better risk assessment overall with better risk mitigation solutions in place.
Creating a business capability map for risk management requires defining the scope and boundaries of the project, as well as the stakeholders and roles involved. Then, identify the high-level capabilities that describe the essence of your business, and group them into logical categories or domains. Furthermore, decompose each high-level capability into lower-level capabilities, until you reach the desired level of detail and specificity. After that, validate and refine your business capability map with the input and feedback of your stakeholders, making sure it is consistent, comprehensive, and clear. Finally, overlay your business capability map with relevant information and data such as maturity levels, performance indicators, risk factors, and owners and contributors of each capability.
It is also important to ensure that owners are identified for the various mapped business capabilities. This will help to keep the mapping up to date and provide ongoing accountability.
Creating a business capability map for risk management involves identifying and prioritizing core capabilities, mapping their interdependencies, assessing associated risks, quantifying these risks, developing mitigation strategies, implementing continuous monitoring, and regularly updating the map to adapt to changing risk profiles and organizational needs.
A business capability map can be a powerful tool for using risk management as a strategic asset for improving your competitive advantage, optimizing resource allocation, and increasing resilience and agility. To use a business capability map for risk management, you should analyze your internal and external environment to identify the sources and drivers of risk. Then, assess the likelihood and impact of each risk on your capabilities, ranking them according to priority and urgency. Additionally, identify the root causes and effects of each risk and potential scenarios and outcomes. Developing risk mitigation strategies aligned with your objectives and values is essential, as is implementing and executing these plans while also monitoring and evaluating their results. Finally, review and update your business capability map regularly to adapt to changing conditions and needs.
Another way of mapping risk with the organisational objectives, relying solely on a business capability map for risk management can create a narrow focus on internal capabilities while neglecting external factors such as market trends or regulatory changes. Organizations need to consider both internal and external risks to effectively manage their overall risk profile.
Business capability mapping for risk management can bring many benefits, such as improving strategic alignment and focus, enhancing understanding of capabilities, increasing visibility and transparency of risks, reducing complexity and ambiguity, leveraging strengths and opportunities , optimizing resource utilization and efficiency, building resilience and agility, and preparing for the future . This tool allows you to align your risk management strategy with your business strategy, creating a more robust and adaptable organization. Not only is it useful for designing and delivering products and services, but also for managing and mitigating risks .