Strategy models & frameworks

Prioritising Risk for Strategy Model (PRiSM)

What is it?

The Prioritising Risk for Strategy Model offers a systematic and structured way for scoring strategic risks and then calculating a relative risk priority number so that different risks can be compared, and decisions taken on which to take action on.

The Prioritising Risk for Strategy Model features in Mike’s book ‘The Strategy Manual: A step-by-step guide to the transformational change of anything‘ and is also covered in our Strategy Master Workshops.

How do I use it?

The Prioritising Risk for Strategy Model (PRiSM) helps you consider the factors contributing to the magnitude of different strategic risks and provides methods for comparing their priority. There are two main advantages to PRiSM: firstly, it provides a framework for looking at risks through different lenses and secondly it provides evidence for identifying risks to act on and prioritising the allocation of resources to that action. Significantly, PRiSM prioritises risks that may give rise to both harm and new opportunities.

Explanation:

PRiSM is adapted from the well-established risk prioritisation tool in engineering called
Failure Modes and Effects Analysis (FMEA). It differs from FMEA in that it considers both the harm and the opportunities that can arise from strategic risks.
The analysis starts by defining the strategic goal affected by risks. This may be a key strategic goal, or one of the methods of achieving that goal. The next task is to work out a scoring system that is meaningful for this domain. PRiSM prioritises risks using three scores:

1. Likelihood score – The highest likelihood is taken to be the risk occurring most often, over a given time period. This is given a score of five. The lowest likelihood is a risk that rarely occurs within that same time period. This is given a score of one.

2. Significance score – PRiSM deals with risks that may give rise to harm or to opportunity, or to both. The ‘significance score’ measures both the severity of harm and the value of opportunity. Each of these is rated between zero (no perceived harm or opportunity) and five (extremely harmful or extremely valuable). The significance score is the sum of the scores for severity of harm and value of opportunity:
Significance = severity of harm + value of opportunity

3. Adaptability score – Adaptability is defined here as the capacity to adapt to risk. This uses a scale where a low score means it is easy to adapt, and a high score that it is extremely difficult to adapt, either to mitigate the potential harm caused by that risk, or to exploit the opportunity offered by it.

A high priority risk is deemed to be something that is likely to happen, with a high degree of significance (in terms of either harm or opportunity, or both) and is difficult to adapt to. Thus, the risk priority number (RPN), by which risks are compared and prioritised, is calculated as ‘likelihood’ multiplied by ‘significance’ multiplied by ‘adaptability’:

RPN = likelihood x significance x adaptability

In order to prioritise risks for your chosen goal, you must first identify them. You may have identified some strategic risks using, for example, a Strategic Risk Register (see our Strategic Risk Model). Alternatively there may be Political, Economic, Social or Technological (PEST) risks to consider, both internal to your organisation, or externally in your marketplace or the wider world. You should consider a handful of key risks that are associated with each goal you analyse, describing them on the template provided. Each risk is then scored in terms of likelihood, harm, value and adaptability, and the resultant scores combined to give an RPN for each risk. The higher the RPN, the greater the priority of that risk.

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