Monday, March 26, 2007

Risk Management & Hockey


Risk management is an old concept in management circles that has, as concepts in management circles are wont to do, come around again (last 5 years or so).

The basics are very simple:

Step 1: identify all risks to the company

Step 2: categorize them according to ability to control them

Step 3: ascertain liklihood of risk (LOW, MEDIUM, HIGH)

Step 4: ascertain impact of risk if it does occur (L, M, H)

Step 5: determine controls that can eliminate or manage risk

Step 6: institute those controls that are cost effective at eliminating or managing risk

Step 7: audit said controls AND solutions for economy, efficiency and effectiveness

Step 8: periodically examine, fresh, Steps 1 though 7 and note that this is an ongoing cycle

Done. Some common examples of the Steps in question are these:

Step 3: odds of a chocolate bar being stolen from a convenience store candy rack - HIGH
Step 4: impact of that loss - individually - LOW - collectively - HIGH
Step 5: putting security mirrors in place, and training staff to be alert to and discourage theft are more cost effective than, say, training a tiger to guard the chocolate bars
Step 6: install mirrors and train staff

and

Step 3: odds of Hoover Dam failing - LOW
Step 4: impact if fails - REALLY REALLY REALLY REALLY HIGH

etc.

That is it kids. You just received thousands of dollars in management training. Wheeee.

Some other examples are these:

Step 1: poor goaltending is a risk to having a winning season and making the play-offs
Step 2: team management can control the risk by contracting or trading for a good goalie
Step 3: odds that current goaltending will fail - MEDIUM
Step 4: impact if fail - HIGH (no play-off revenues, etc.)
Step 5: control: monitor performance of goaltending vs. team: if team performs well and goaltending is the problem then trade for goalie
Step 6: monitor performance of team vs. goaltending
Step 7: control is good but original solution, while economic, is not efficient or effective - replace goaltender
Step 8: monitor anew


AND

Step 1: poor depth AND experience level on defense is a risk to having a winning season and making the play-offs
Step 2: team management can control the risk by contracting or trading for defensemen
Step 3: odds that current defense will fail due to injury and/or capability deficiencies or both - HIGH
Step 4: impact if fail - HIGH (no play-off revenues, etc.)
Step 5: control: monitor performance of defense vs. team: if team performs well and defense is the problem then trade for better/more defensemen
Step 6: monitor performance of team vs. defense
Step 7: control is good but original solution, while economic, is not efficient or effective - goaltending is good but team offense is bad - replacement of enough defense to compensate is probably too expensive; do nothing in regards to defense
Step 8: wait for next season

Interesting eh? Oiler team management might just be using risk management analysis. Good on 'em.

Except.

Well.

Except for the fact that proper risk analysis in the second scenario would actually, probably, look like so:

Step 1: poor depth AND experience level on defense is a risk to having a winning season and making the play-offs
Step 2: team management can control the risk given budget and cap space
Step 3: odds that current defense will fail due to injury and/or capability deficiencies or both - HIGH in both cases indicates VERY HIGH
Step 4: impact if fail - HIGH (no play-off revenues, etc.)
Step 5: control: examine UFA market for a defenseman who can improve depth and/or experience level OR both of the defense / also examine teams for defensemen for trade
Step 6: monitor cost of adding said defenseman against cap and budget space
Step 7: control is good and given presence of UFA's that fit the parameter (Markov, Eaton, etc) and possible trade opportunities (Vishnevski, Matvichuk, etc) solution is economic, efficient and effective
Step 8: implement solution and begin cycle anew

Hrmmmm... different... I submit to you that the Oiler's management is either poor at risk management analysis or knew the risk going into the season and didn't really care.

i.e. they accepted the MUCH higher than average risk that the team wouldn't make the play-offs

Make your own conclusions accordingly. Mine is quite simple: they knew this season was apt to happen and were quite okay with it, which means that it isn't that they planned to have it - it is that they didn't plan to avoid it and by doing so committed that which is not easily forgivable of a professional sports team - they planned to fail.

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Have a great evening everyone.

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