Creating a Risk List for Your E-Commerce Venture
The most important step you can take to evaluate your e-commerce plan is to take a close, realistic, — even pessimistic — view of it. Have your project team look at the plan and point out the places where disaster is most likely to fall and compile the list — you end up with your very own risk list. If you know where the dangers lurk, you can safely navigate the rapids and enjoy the benefits. So get your key players together, and let them have at it!
When you’re putting together a risk list, be sure to review the list of benefits to see if some of the benefits of the plan also come with great risk. For example, you may find that some of the benefits require the use of new and unproven technologies, therefore making them risks themselves.
Here’s a sample risk list to get you started (Try to be realistic; “The world might end tomorrow” is a little off target for this particular exercise):
- This project could distract key resources within the company, causing the rest of the business to suffer.
- We will be placed on the same level as our major competitor, a company that already does most of its business online. (Yes, this is a risk as well as a benefit!)
- Our customers may not want to change the way they do business with us, so the cost of an e-commerce project may not generate profits.
- Increasing the number of products we offer by using a Web site will create warehousing and distribution issues.
- If we decide to use alternative warehousing options, we have to create partnerships that make us vulnerable — we have to count on those partners to ship products on time.
- Our employees may feel threatened by the project and refuse to use it or recommend it to customers.
Prioritizing potential risks
After you get all your risks in a row, have a volunteer from the e-commerce team enter it into the formal record. Make sure that the list is available to members of the team at each team meeting — you can compare the list to the benefits you expect to realize from your e-commerce venture.
Sit down with your project’s key players and start prioritizing the risks. Rank them in order of how likely they are to occur. Assign two numbers, ranging from 1 to 3, to each risk (the lower the numbers you assign, the higher the likelihood the risk will become a disastrous reality):
- The first number indicates how likely the risk will become a reality.
- The second number indicates how devastating you think the risk will be if it occurs.
For example, one risk is that your Web server could crash, preventing customers from accessing your online business. How likely is that? Very — it will happen, sooner or later. So, give that risk a likelihood of 1, for “will definitely happen at some point.” How devastating will it be? Pretty much totally devastating. So give it a 1 for “this will kill us if it happens.”
Try to keep your likelihood/potential for devastation numbers on a scale of 1 to 3 (high, medium, and low). This scale will make the list easier to work with and keep you from splitting hairs when assigning priorities to your risks.
After you assign numbers to all the risks, arrange the list in order of likelihood and rank each item by how bad things would be if and when a disaster occurs. Then move on to less-likely risks, and so on.
Plan to revisit the risk list regularly — at each status meeting — and revise it periodically as risks arise and are mitigated. Use the risk list to prioritize your efforts — doing so will keep the project on track.
Mitigating possible risks
After ranking the risks for your e-commerce strategy, you can start looking at how to handle those risks should they occur. Your plan shouldn’t go any further until you at least come up with a scheme to handle the risks rated as “likely to occur.”
Ideally, you should have a plan to mitigate every risk on your list. Each risk carries a potential financial loss, and each mitigation strategy carries a financial cost. Does the risk justify the cost?
The scenario: Death of a Web server.
The risk: Loss of dinero (bummer), potential to lose customers (ouch), damage to the reputation (gasp — not the reputation!).
The conundrum: How much are you willing to risk?
Mitigation scenario number one: You have only one Web server. If it dies you could lose as many as three days’ business while you purchase and set up a replacement server. If you generate $10,000 per day in revenue, your risk is $30,000 — plus the cost of a new server, plus the damage done to your reputation and the loss of customers who may never come back.
Mitigation scenario number two: You opt to purchase a second backup $50,000 server now.
Burning question: Is plunking down a real $50,000 for a server now a justifiable risk when compared to the potential loss of $30,000 (not to mention your reputation)?
The server could drop once a month, costing you $30,000 per month in lost revenue. A second server could reduce your company’s response time to your users and prove a beneficial investment as your company grows. Or it could sit in a corner gathering dust.
As you develop mitigation strategies, evaluate them in terms of the entire project — the overall cost, ongoing maintenance costs, profits you expect to receive, costs of missed opportunities, and a host of other factors. You hired smart people — let them hash out a solution that produces the greatest increase in profits.