The value/risk matrix measures the complexity of a process, product feature, contract, or other initiative based on value and risk.
If possible, they should be broken down into smaller actionable tasks. These initiatives demand the constant attention of highly experienced managers. The focus here should be on activities that reduce risk.įor example, the close monitoring of performance against KPIs or the regular contact with key stakeholders to proactively discuss issues as they arise. Focused (high risk/low value)Įncompassing high-risk initiatives without much value. This may include volume discounts, rebate applications, or monitoring spend and leakage. Since these initiatives are high in value but low in risk, a priority should be made on extracting as much value as possible. In other words, the business does the bare minimum to facilitate transactions so that it can focus its efforts elsewhere. Here, a “light touch” approach is recommended. Here are the four categories that plot each factor on the matrix: Routine (low risk/low value) If each factor is ranked out of 100 for value and risk, then a low-risk initiative will score between 0 and 50 and a high-risk initiative between 50 and 100.īusinesses that need more flexibility or precision may choose to use a 3×3 matrix with low, medium, and high designations. The value/risk matrix is a relatively simple 2×2 matrix, with risk on the x-axis and value on the y-axis.Įach of the four quadrants should be partitioned according to the designated scoring system. The four classifications of the value/risk matrix This gives a final score for each factor that can then be plotted on the matrix to guide future action.Ĭontinue reading to learn how each factor should be plotted. Add the scores for each predefined question or criteria according to risk and value Repeat the previous stepīut this time, assign each factor a risk score based on uncertainty around cost, time, or the ability of the team to execute.Īgain, higher scores should equate with higher perceived risk.įor example, a business whose core operations would be significantly affected by a supplier defaulting would assign this risk a high score. Higher scores should equate with higher perceived value. Many businesses choose to use a list of predefined, context-specific questions (criteria) to assess value. Assign each factor a value score based on its potential usefulness to the business, supplier, or customer This could be contracts, initiatives, projects, processes, or product features. Here is one that is both simple and effective: Start by listing the factors to be evaluated There are several methods to completing the value/risk matrix. This allows team members to filter and rank each initiative and prioritize investment decisions that are aligned with organizational strategy. Regardless of the application, the risk and value associated with an initiative is displayed in a matrix.
A category of goods or services (for developing category management plans), and.This includes contract renewal and extension or the designation of a new risk profile as a result of a significant event. A contract or group of contracts (contract management).Typically, the value/risk matrix has three main applications: The value/risk matrix is useful in any scenario where a business wants to assess value in terms of risk and associated complexity. The four classifications of the value/risk matrix.Add the scores for each predefined question or criteria according to risk and value.Assign each factor a value score based on its potential usefulness to the business, supplier, or customer.Start by listing the factors to be evaluated.Digital Business Models Podcast by FourWeekMBA.Business Strategy Book Bundle By FourWeekMBA.An Entire MBA In Four Weeks By FourWeekMBA.100+ Business Models Book By FourWeekMBA.
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