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Management And Training

Performance management: Risk measurement and control

September 19, 2010
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The next time you are at a stoplight, know that you are looking at, and are guided by, the most common risk measurement system in use today.

In late 1868, the first public traffic light was erected near England’s Parliament Square in London.

It was a gas-lighted signal that was hand operated to show red (stop) and green (go) colors.

It was pretty basic, but it was the start of a practical standard.

That light may be the first and most recognized traffic control system in use today.

And, it is an elegant system that tries to control the risks ahead through the changing colors of the lighting system.

The colors of these lights is one of the most instantly recognized risk management systems in the world.

Given the wide acceptance of this system of risk management, I’d like to explore how we might use the “stoplight” color-risk idea, and then add something to expand the value of the color metric.

Color codes
The three colors of this metric system communicate the same meaning worldwide and describe a variety of risk standards.

For example, red not only refers to a “stop” condition, but has been used to indicate any “high risk” condition.

Yellow is considered a “caution” signal, but has also been used to identify “moderate risk” situations.

Finally, green is seen as a “go” or proceed signal, although it has been used to communicate a “low risk” condition.

These color metrics have evolved and expanded in application and now show up in all kinds of data analysis, survey materials and reports.

The interesting thing about programs that introduce this color metric system is that adoption and acceptance is nearly instantaneous.

Everyone quickly understands the idea since they “get it” and use it without a great deal of push back.

Indeed, if you look carefully, you will find the “stoplight” metric in wide use in manufacturing, service, financial analysis, and reporting in nearly every discipline.

The one weakness of this model is the absence of an “opportunity” light.

Pass go
Beyond a “go” condition, there is often an opportunity to leverage a set of circumstances that might create an advantage.
For example, if you are on schedule, you might have a green signal.

However, what is the indicated light when you are way ahead of schedule with the opportunity to create a project advantage.

Financially, if you are on-budget, you might see another green indicator, but what is the visual clue if you are substantially below budget?

To address this need for an opportunity indicator, we have introduced a blue color metric.

It provides an instantly recognizable visual indication that an opportunity exists that should be explored to create a performance advantage.

Let’s look at this “opportunity” concept, using our well known “stoplight” model, with a new blue light.

This expanded model has a number of advantages: It is easily understood, regardless of language; it can be implemented with minimum resistance to change; it quickly communicates new opportunities for success; and it can be applied in broad categories of information collection, analysis and reporting.

When evaluating alternative choices of any kind, this risk model can be very useful.

This is a “1-A” matrix for any set of alternatives.

Each column is a risk assessment report using the four color risk system.

When each alternative is stacked for comparison, the color-risk system provides a dashboard summary of the risks and opportunities associated with the alternative choices.

In this example, the lowest risk option is alternative “D,” which exhibits more blue (opportunity) and green (low) risks, while the greatest risk is associated with option “B,” which exhibits the highest red and yellow color indicators.

Equally important, the opportunity for improvement for the “D” alternative can quickly be focused on Criteria “8,” a yellow risk factor.

As a performance management tool, the “stoplight” risk assessment system can be an effective approach for communicating risk and opportunity.

Vincent F. Elliott is the founder, president and CEO of Elliott Affiliates, Ltd. of Hunt Valley, MD, He is widely recognized as a leading authority in the design and utilization of best practice performance-driven techniques for janitorial outsourcing and ongoing management.

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