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- 1. Francis P Coyne + Associates Limited Management and Organisation Development Consultants Systematic Business Appraisal Nine due diligence positions of the SME Directors Toolkit Multiple perspectives: Appraisal depends on the objectives of an Market Risk appraiser or stakeholder e.g. proprietor, shareholder, lender, buyer, investor etc. Each appraiser selects a set of key issues and metrics Strategic (KPI's) consistent with their mercenary interests and goals. A Vendor Risk Business Risk Position carefully chosen small set of key metrics has superior explanatory Supplier Effectiveness Metrics Business power (see: Stakeholder Map, Concepts of Value and Metrics). Position Position Fact-based analysis of drivers and trends: Determine which Stability Metrics Demand Metrics issues and metrics are critical in each one of the 'core dimensions of business performance' and systemically (see: Workbook). Appraise Ambition performance and trends and the realism of projections against the selected key metrics. Be alert to na誰ve projections and to changes in and within trends. Summarise your findings and conclusions from Financial Risk Talent Risk Credit Risk the analysis on the Risk Template and/or Radar Chart. Objectives Execution P&L Leadership Cash Beware of invalid tacit assumptions: Assumptions, the thinking behind the thinking, that which we (unwittingly) accept (believe or Position Position Position suppose) to be true. Surfacing and challenging assumptions i.e. Gearing Metrics Capability Metrics Liquidity Metrics things you consciously or unconsciously take for granted as being true or reliable in each of the due diligence positions are at the core of this systemic risk analysis. Plot your findings and conclusions from the analysis on the Assumptions Map and Risk Template. Strategy Legal Risk Value Risk The power of good questioning: You only get answers to the questions you ask and omissions in this regard can be painfully Regulatory Customer apparent in retrospect. A question not asked is a door not opened. Process Risk Good questioning identifies the key issues, strengths, risks and Position Position opportunities in each of the core dimensions of performance and as Compliance Metrics Operating Retention Metrics a systemic whole. Good questioning differentiates symptom from Position cause, builds relationships, stimulates creativity, motivates fresh thinking, surfaces underlying assumptions and challenges the Efficiency Metrics 息 www.frank-coyne.com consult@eircom.net robustness of those assumptions. When you change your questions you change your results. Great results begin with great questions and good decisions begin with clear values and timely, evidence- Systems thinking in action: Systemic appraisal of key issues, based, risk-weighted, information (see: Focus and Workbook). assumptions, risks, metrics and trends in the nine correlated dimensions Darwin is a better guide to competition than economists - Henderson Important: Distinguish between leading (predictive) and lagging (post-mortem) indicators (KPI's), and process, (activity) and output (accomplishment) metrics and between customer-centric and corporate-centric metrics. When focusing on metrics, be mindful that, as noted by a sign hanging in Albert Einstein's office: "Not everything that can be counted counts." See also: Strategic Planning Toolkit, Business Innovation Toolkit, Leading for Results Toolkit, Consultants Toolkit, Trusted Advisors Toolkit, and SOS Creativity Toolkit
- 2. Francis P Coyne + Associates Limited Management and Organisation Development Consultants Systematic Business Appraisal Avoid information overload! The crucial importance of focus: The fine art of 'leverage seeing' This simple graphic illustrates the Pareto principle The law of the 'vital few' and the 'trivial many' Vital Few 0% Trends Focus Vital Few Executive Dashboard: (20%) Metrics/KPI's CSF's in Core Dimensions of Performance Impact or Leverage 20% 80% Business Acumen Results, The ability to quickly Outputs, discern the 'vital few' Rewards, in each of the core Achievements dimensions of Trivial Many performance and systemically is a key analytical skill Dashboard Metrics Imbalance or lack of direct correspondence between 100% effort and reward 息 www.frank-coyne.com Ireland allowed its three largest banks to build up total assets two times the size of the Irish economy. And then they failed - Johnson Focus on the critical issues/CSF's ('vital few') and the related assumptions, risks, metrics and trends in each of the core dimensions of business performance and systemically. The difference between mediocrity and genius is the ability to focus one's attention - Einstein Small changes can produce big results, but the areas of highest leverage are often the least obvious: A key to success is to recognise that a small advantage or additional input can translate into a highly disproportionate payoff. This phenomenon is sometimes referred to as the tipping point, the 20/80 rule or the law of nonlinearity (sandpile effect). It is a perceptive recognition that little causes can have big effects and become a 'tipping-point' and that change happens, not gradually, but at one dramatic moment. Gladwell, in his bestseller, defines this point as the 'tipping-point'. Caveat: The leading indicators of business performance cannot be found in financial data alone (essentially the consequences of yesterdays decisions). Customer satisfaction, customers' perception of the organisations stature and professionalism, employee satisfaction, product and service quality, innovation, market share - metrics like these often reflect a company's economic condition and growth prospects better than its reported earnings do. Depending on an accounting department to reveal a company's future will leave it hopelessly mired in the past - Ref: The Performance Measurement Manifesto, Eccles, HBR. Just 12 firms account for 90% of Irish exports!
- 3. Francis P Coyne + Associates Limited Management and Organisation Development Consultants Systematic Business Appraisal EXAMPLE Analyst's findings summary: DER (%) ____ ROCE (%) ____ CIR (%) ____ AV/S (%) ____ AV/C ____ MOS (%) ____ Following a systemic analysis of key issues, assumptions, risks, metrics and trends in KPI's Analyst's perception of strengths in the core dimensions Instructions: Please draw on your knowledge, experience and intuition and be as objective as you can in due diligence positions. Subsequently link-up to form your SME risk perceptions profile. Even if you do not have enough information to make a definitive judgement in each case, please answer to the best of completing this appraisal profile. Shade the circle that best represents your current view for each of the Systemic risk review: Very Weak Moderately Weak Equivocal Moderately Strong Very Strong 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Appraisal must be adapted to circumstances and level of development of the business Strategic Position Equivocal: insufficient fact-based information to appraise, require further research, evidence and/or reassurances Get the assumptions wrong, and everything that follows from them is wrong - Drucker 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Business Position 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Ten due diligence positions of the business Cash Position Core Dimensions of Performance 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Customer Position See: Workbook (1) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Operating Position 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Regulatory Position your knowledge and understanding at this time. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% P&L Position 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Supplier Position 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Capability Position 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Collateral Position 息 Must not be copied or reproduced without written permission High risk lending proposition Low risk lending proposition Analysts Conclusion Robustness of the lending proposition Certainly not Almost certainly not Probably not Unlikely Equivocal Slight evidence Probably Almost certain Certain 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Confidential ( ) 息 www.frank-coyne.com Default very likely Default likely Default possible Default unlikely Default very unlikely Note: Appraisal templates are designed to meet the specific requirements of clients Amateurs study the plan. Professionals study the assumptions - Old Military Saw