What’s the worst that could happen? Sometimes the question comes up when inconsequential decisions are being made, but such a query can be more than just an off-hand remark for those who analyse new business initiatives. Purposefully pessimistic sessions called “premortems” are helpful in uncovering and then developing strategies around unknown risks. Here’s a guide on how to conduct a pre-mortem.
- Determine if a pre-mortem is needed. Pre-mortems can be conducted on either a company-wide project or a departmental initiative, according to Susan Lesser, a co-founder of Connecticut-based nPlusOne Consulting. Projects or initiatives that could benefit from a pre-mortem include everything from launching a new product to acquiring a competitor. The process should begin as soon as the scope and parameters of the project have been defined.
- Pick a facilitator who will lead the premortem. It’s crucial to select a facilitator who is objective and has no emotional or financial ties to the project. The facilitator can be an external consultant, but if the company is large enough, can also be an employee in another department. The facilitator needs to be detached from the project because those involved are often overly optimistic about its chances of success.
- Imagine that it is a few years in the future, and the project in question has failed. The facilitator should ask team members to write down all the reasons the project might have failed, then share them. Did a key operational process break down? Or was it a personnel issue, such as the departure of a senior executive? Or did an outside event, such as a natural disaster, cause facility problems that just couldn’t be overcome? “You’re really just trying to identify risks to your current strategy,” said Mark Beasley, a professor of enterprise risk management at North Carolina State University’s Poole College of Management.
- Assess the risks by determining how likely they are to happen and what impact they would have if they occur. “The bigger the issue, the more we want to be aware of it,” Lesser said. Case in point: If you’re buying a pharmaceutical development company, you want to know what the chances are that its lead drug will fail in a clinical trial. Moreover, you’ll need to determine how much time and money it would take to usher the drug through another trial.
- Develop strategies to mitigate top risks. Maybe your organisation can purchase insurance that would cover losses in the event of a natural disaster. Or perhaps the company needs to identify successors to key personnel who might retire, or even die, in the coming years.
- Develop key risk indicators. Just because you can take steps in the short term to alleviate risk, it doesn’t mean the problems will be solved forever. The team must be able to re-evaluate risks on the project throughout its implementation. For instance, if you are considering buying a competitor, a key risk indicator to watch might be the customer attrition rate of the proposed acquisition.
- Once the pre-mortem has been completed, make a decision. If the risks aren’t of great concern, a team may choose to move ahead with a project. Conversely, a team may determine it doesn’t have the appetite for some of the identified risks — even after they’ve been partially mitigated. That’s when the team may decide to pull the plug on the proposed project instead of moving forward. After all, the purpose of a pre-mortem is to avoid having to conduct a post-mortem at some point down the road.