Strategic Analysis and Planning with MATRIX V5
Tutorial Step 16 - Risk Analysis

Risk Analysis is a unique development from Market Modelling Limited which produces a Risk / Return chart for any permuation of Niches within a given Portfolio.

Intentionally or otherwise, many organisations address business opportunities that are inefficient and may be seen as 'dead weight' – for example products that are approaching the end of their life cycles, or segments that are no longer profitable. Risk Analysis enables the strategist to view such problems in context, and take a view on whether a more efficient Portfolio can be developed by withdrawal from the Niches under question, or whether (to safeguard the bigger picture) they should be retained.

'Risk' and 'Return' scores are calculated for each Niche, and then 'summed' for different combinations (or permutations) of Niches. In the diagram opposite:

• Point ‘H’ represents the theoretical ‘Maximum Risk’ / ‘Maximum Return’ Permutation
• Point ‘L’ represents the ‘Zero Risk’ / ‘Zero Return’ Permutation.
• Point ‘A’ represents an ‘Optimum Risk’ Permutation which lies on the efficient frontier. It offers moderate Risk and good Return, and may be worth pursuing.
• Point ‘B’ represents a slightly ‘Higher Risk’ / ‘Higher Return’ Permutation. However it is not optimum since it does not lie upon the efficient frontier. It should be considered if it implies withdrawing from several Niches which represent a geographic market, an industry type, or a product range. That is, there is a common feature associated with all of the ‘excluded’ Niches.
• Point ‘C’ is even more preferable since it does lie on the efficient frontier. However it does imply a higher Risk than the permutations represented at points A and B. If the Permutation at C looks sensible, and ‘passes’ with other analyses (e.g. the Boston and Directional Policy Matrices and Gap Analysis), then this option would perhaps be given favorable consideration.
• Point ‘D’ represents a relatively ‘High Risk’ / ‘Low Return’ Permutation near to the inefficient frontier. It entails considerably higher ‘Risk’ than Permutations A, B or C and is also likely to yield a lower ‘Return’. Permutation ‘D’ should be avoided.

Risk Analysis And MATRIX V5

Below - An example of the Risk Analysis Chart produced by MATRIX V5, the software application for business strategists.

The permutation can be revealed on the left-hand side of the chart by clicking and dragging the chart edge. 'Hotspots' accessed by moving the cursor to the red 'Portfolio in Focus' marker, and to Frontier permutations provide information on permutation, Risk and Return. The chart can also be copied and pasted into a compatible graphics or presentation package by means of the Right-Hand Mouse Click / 'Copy to Clipboard' function.

The Host Company should attempt to devise a Portfolio that adequately reflects the Risks that it is prepared to take, and the Returns that it has to realise. This Portfolio has to be considered in relation to various components of strategy, for example whether the company is prepared to diversify into new areas, or whether it wishes to remain focused in current markets etc.

The 'Select Risk Analysis' Dialogue

MATRIX V5 is an 'expert user' software tool which provides great flexibility when plotting 'Risk Analysis' charts. Tabs on the 'Select Risk Analysis' dialogue give the user choice in the detail of the plot.

To open the 'Select Risk Analysis' dialogue, click the 'Risk Analysis' button (above) which is located upon the toolbar.

To display the Risk Analysis chart shown earlier, the following settings are required within the ‘Select Risk Analysis’ Dialogue:

1. Permutation: Tick all of the Niche ‘Select’ Tick Boxes.
2. Time: Drop Down Start Year ‘2005’ and End Year ‘2009’
3. Also, tick the ‘View Permutation’ Tick Box

These are the default settings. Clicking the ‘Plot’ button now reveals the required example.

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