Risk-adjusted planning

By Matthias Holzamer

War, supply shortages, inflation, exploding energy prices: We are currently living through multiple crises with profound economic effects and are on the verge of a global recession. For businesses, the coincidence of all these factors necessitates an unprecedented balancing act. That's because deterministic planning with fixed timeframes and defined targets is no longer fit for purpose given the many flashpoints existing today. To be prepared for unexpected events with heavy impact, companies must engage in scenario thinking and develop contingency plans for the potential occurrence of many different risks at the same time – while also keeping an eye on how the various crises are changing and influencing each other. Alongside this, the regulatory screws are being tightened, with German lawmakers significantly increasing the liability of corporate directors & officers (D&O liability): With the Act on the Stabilization and Restructuring Framework for Businesses (StaRUG) that came into force on January 1, 2021, all corporations limited by shares are required to implement an effective early warning system and to take suitable countermeasures based on this continuous monitoring. These are requirements that are not easy to meet, especially for small and medium-sized enterprises (SMEs).

A new Roland Berger method of risk-adjusted planning, developed in collaboration with the risk experts at FutureValue Group, helps shield companies from developments that could jeopardize their continued existence in a volatile world – and from the resulting D&O liability – without losing sight of the opportunities that can very well arise in times of crisis.

Taking a holistic view of all the separate risks and aggregating them in the form of stochastic planning allows companies to work out the total risk and thus determine their own risk-bearing capacity, even in extreme situations, and make their business plans crisis-proof. In addition, risk-adjusted planning helps give businesses more room for maneuver by dispensing with unnecessary risk hedging and enabling them to individually optimize their provision for risk. This leaves more money on the table to finance investment and growth. As a result, companies can be more relaxed in the face of future crises and be ready to hit the ground running as soon as the markets and the macroeconomic environment permit.

So how does it work? First you quantify all relevant market, industry and company risks by means of stochastic modeling, which makes even hidden risk potential visible. Then you can analyze strategic alternatives on a secure basis of fact. This reduces the liability risk involved with your entrepreneurial decisions and makes your strategy more robust. The entire five-step process usually takes no longer than four weeks.

You can find out more about our new holistic approach to crisis prevention, risk mitigation and strategy analysis in our "Risk-adjusted planning" article, which you can download free of charge here.

Register now to download our final publication of our "State of the Nation" series and find out how companies can make the best of the ongoing wave of crises. Within this download, you will also receive our joint study "Compass for Germany - Pressure to act in uncertain times". There you can find additional articles on the global crises and their impact on companies and the economy.