This loss could affect future sales, especially if those were repeat customers and loyal buyers. In our example, 3 of the 12 departing customers are highly profitable. We might consider that 5 of the 12 customers were “difficult,” and probably not our Ideal Customers.Īnother consideration is what effect this shift is having on other customers, on staff, or on projected sales targets. Next, we want to set a numeric equivalent for the amount of impact - the degree of negative change that will (or could) happen due to this problem. (These are all, by the way, indicators of non-Ideal Customers.) Step 2: Select an Impact Score expected frequent phone calls and updates,.5 of the 12 departing customers were difficult to work with:.The loss of these 3 customers is equivalent to a profit loss of 4%.3 of the 12 were significantly profitable, with a high cost-to-profit ratio (they generated more sales than the cost of doing business).Of the 12 customers who left, 5 were new and 7 were repeat.The overall rate of customers has dropped by 10% in the past month, from 120 active customers to 108.Rather than pointing blame or trying to solve the problem right away, a better approach is to state the problem logically. You want to know whether this is a significant problem or one that can just be monitored. Upon reviewing your numbers, it is clear that several customers have decided to stop using your services. Let’s say you own a healthcare service business, and you notice a sudden drop in the number of customers. Take a few steps back, and pretend that you’re an observer who is not emotionally tied to the situation. Step 1: Step Back and Use Logicįirst, consider your problem from a big-picture perspective. There are 6 steps I recommend when using this tool. Severe (a score of 10 to 16) - Rapid action is requiredĬritical (a score of 20 to 25) - Immediate, crucial priority Serious (a score of 3 to 6) - Active monitoringĭisruptive (a score of 8 to 9) - Investigation needed This number is associated with a 5-level scoring result (Controlled, Serious, Disruptive, Severe, or Critical).Ĭontrolled (a score of 1 to 2) - Limited monitoring only Our scoring is done when we select a level of Impact (1 to 5), and a level of probability (1 to 5).Ī score is determined by the product (multiplication) of the two numbers. This is done using a numbered scoring method and color-coded indicators. We can use this tool to calculate whether negative outcomes will happen, and if so how destructive the effects could be. Strategic Risk Severity Matrix (Probability circled) How to Use the Strategic Risk Severity Matrix Frequent - Likely to occur soon and often ( the highest Probability).Unlikely - Not expected to occur ( the lowest Probability).Probabilitygoes from Low (at the bottom left) to High (bottom right): On the bottom are the Probability factors, which is how we rate the likelihood that the event will happen. Strategic Risk Severity Matrix (Impact circled) Catastrophic - Risks will cause extensive damage and long-term effect ( the highest Impact).Major - Risks will cause significant loss, injury, or damage.Serious - Risks may cause considerable loss, injury, or damage.Marginal - Risks may cause minor loss but little overall effect.Negligible - Risks have minimal damage or long-term effect ( the lowest Impact).Impactgoes from Low (at the bottom left) to High (at the top left): On the left side, we see Impact factors, or severity if the event occurs. The Strategic Risk Severity Matrix is a square containing 25 colored boxes in a 5×5 pattern. Grace LaConte’s Strategic Risk Severity Matrix What Is the Severity Matrix? Whatever the reason, the Strategic Risk Severity Matrix is a fantastic tool to help you make a data-driven determination. You might need to convince others to take action (by your business partners or Board of Directors), so you’re looking for evidence that the problem is bad enough to allocate significant funding and resources.You may have an intuitive feeling that something is not right, but you want to prove this with data that corroborates your gut feeling.Maybe you are wondering whether you should simply monitor a problem, conduct an investigation, or stop all activity in order to manage a critical problem.There are many reasons for evaluating the degree of vulnerability (or potential vulnerability) in a business: In this post, I’ll walk you through each step of using this tool, along with a practical example to demonstrate how it works. This is easy to do with a tool called the Strategic Risk Severity Matrix. I was recently asked to explain the “Impact Score” in a Strategic Risk evaluation process.
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