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Management Resource Library

Exposure Management

In light of the ever increasing quantity and complexity of operational problems confronting our clients, it is imperative that the management of these organizations know, monitor and react to the key performance indicators of their organizations’ operations.

Although the difficulty of this management task is apparent, it is more acute for smaller organizations that lack sufficient funds to maintain the level of internal management expertise of their larger counterparts.

One practical approach to this dilemma might be “exposure management” (management emphasis placed on those critical areas that are the most sensitive to overall successful operations).

An example of a related use of the exposure method is the ABC inventory control with which many of you may be familiar. Briefly, this entails classifying inventory items into three categories:

1. A – Items small in number but high in dollar value,

2. B – Items medium in number and medium in dollar value,

3. C- Items large in number but low in dollar value

Increased monitoring and control can be placed on the A items, since this is where the “exposure” is the greatest, while lesser controls can be maintained on the B and C items. Thus with a re-shifting of the control emphasis, management can obtain more (in terms of reduced exposure) for its control cost dollar.

The Logical extension of this principle is to apply its attributes to the overall operations of an organization. A structured analysis and review of an organization’s operations can lead to a “relative ranking” of the critical areas where exposure and sensitivity are greatest. When this “broad” ranking has been complied, then additional “sub-rankings” of indicators within broad categories can be undertaken. Once the broad and detailed rankings are complete, management can more appropriately and objectively select the emphasis (by allocating its scarce resources of time, money and manpower) that the various aspects of operations merit.

Thus, if the current state of affairs in your clients’ organization finds trivial matters receiving more emphasis than available resources would dictate, while critical areas are receiving inadequate attention, consider assisting your client in the redirection of its management effort. If implemented and monitored, exposure management techniques should result in a more optimal and logical approach for managing the operations of any organization.