Multiple Action Thresholds

Recovery from a significant event is costly and disruptive. While an expense, mitigating and preventing activities taken to prevent the event’s occurrence are typically far less expensive. From a business perspective, the challenge becomes that of balancing the value of risk reduction with that of the mitigating and preventative activities’ cost.[wcm_restrict plans=”41581, 25542, 25653″]

A key contributor to the cost factors associated with this balanced equation is the implementation timing of risk mitigating and preventing actions. Delaying such actions defers their cost until and only if such activities are needed to reduce risk. Subsequently, the better the organization’s ability to detect and respond to performance degradation evidencing an impending event the greater the deferment related cost savings. Without this predictive capability, risk mitigating and preventing actions need to be in place at all times, heightening short-term expenses and forfeiting the opportunity to avoid these costs should the associated performance degradation never occur.

Organizational performance measures themselves provide a means to recognize event predicting performance degradation. Action thresholds added to these measures provide a tool for easy recognition of when event mitigating and preventing actions need to be taken; alerting appropriate individuals in a timely enough manner so that actions can be implemented and their effects realized early enough to prevent the event. But while some deferment benefit is gained, a single threshold necessitates all of the event mitigation and prevention actions be implemented at the same time; forfeiting the possible omission of actions associated with more dire circumstances.

Multiple mitigation and prevention action thresholds further subdivides when conditions warrant such actions are taken; further reducing or at least deferring the cost of these measures. Multiple thresholds allow for the stepping up of risk reduction efforts only if conditions are not responsive to early diversionary actions and performance degradation continues. Thus, additional cost deferment and/or savings can be realized.

A Transcendental Argument for Multiple Thresholds…

An adverse condition exists that will ultimately result in a catastrophic equipment failure of significant cost to a company. Four mitigating and preventing actions have been identified that collectively ensure the condition will be resolve and the event averted. One or a combination of these four activities may also enable event avoidance but only implementation of all four actions assures event avoidance. Possible outcomes and costs:

Scenario 1 – Inadequate or No Performance Monitoring

Condition Exists, No Actions Taken – Event occurs at significant cost to the company; far more than the cost of implementing all four mitigating and preventing actions.

This is the worst of all possible circumstances. Organization leaders fail to recognize the adverse condition and subsequently take no action. Conditions worsen until the event occurs and the company realizes severe and costly outcomes.

Scenario 2 – Performance Monitoring with a Single Action Threshold

Condition Exists, All Actions are taken at the Action Threshold – The event is avoided at a total cost of 4 units.

This is the second worse outcome for although the event and its associated costs are avoided, the organization bore the cost of implementing all four mitigating and preventing actions, some of which may have been unnecessary to prevent event occurrence.

Scenario 3 – Performance Monitoring with Multiple Action Thresholds

Condition Exists, First Action is taken at the Initial Action Threshold – Total Cost: 1 Unit

• First action is taken, the condition is resolved and the event avoided or
• First action is taken, the condition is improved but not enough to avoid the event

The first possible result is the best possible outcome as the event is avoided at the lowest possible cost. Should the adverse condition persist, organization leaders implement follow-on actions once the appropriate threshold is met.

Condition Exists, Second Action is taken at the Secondary Action Threshold – Total Cost: 2 Units

• First and second actions are taken, the condition is resolved and the event avoided or
• First and second actions are taken, the condition is improved but not enough to avoid the event

The first possible result is the second best outcome as the event is avoided while only incurring the cost of two of the four mitigating and preventing actions. Additionally, the expenditure of resources on the second set of actions was deferred creating additional benefits. Should the adverse condition persist, organization leaders implement additional follow-on actions one the next threshold is met.

Condition Exists, Third Action is taken at the Tertiary Action Threshold – Total Cost: 3 Units

• First, second, and third actions are taken, the condition is resolved and the event avoided or
• First, second, and third actions are taken, the condition is improved but not enough to avoid the event

The first possible result is the third best outcome as the event is avoided while only incurring the cost of three of the four mitigating and preventing actions. Additionally, the expenditure of resources on the second and third set of actions was deferred as long as possible creating additional benefits. Should the adverse condition persist, organization leaders implement the fourth and final action which ensures event avoidance.

Condition Exists, Fourth Action is taken at the Final Action Threshold – Total Cost: 4 Units

• All actions are taken, the condition is resolved and the event avoided

In this case, the cost of all four actions is realized by the organization similar to that in the second, single threshold scenario. It should be noted that the mitigating impacts of the first three actions may allow this final action (and actions two and three) to be taken at a point in time past that the single threshold mandated all four actions be taken. Therefore, there is the possibility that the deferment benefits will be realized in excess of the single action threshold case; making the multiple threshold option more cost effective than the single threshold case.[/wcm_restrict][wcm_nonmember plans=”41581, 25542, 25653″]

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Additional Information

Additional information regarding organizational performance measures and their thresholds can be found in the StrategyDriven whitepaper series Organizational Performance Measures.