The PRO Dilemma: Part 1
Debating & Deciding
A day in the life of a corporate decision-maker involves addressing a multitude of issues and striving to make the most of business. And, there are many styles of doing business, from conservative to liberal and free flowing with the cash. Imagine the “figure it out as we go” mentality of throwing cash at several projects to see where it will “stick” and generate profits. For most companies, though, a more calculated, safer approach is preferred.
For companies with a sound risk-mitigation style, the decision-making process can be broken down into 3 parts: resolving problems, mitigating risks, and capturing opportunities. That is, addressing issues that arise, while trying to prevent others from occurring in the first place--all while trying to maximize profitability.
But which Problems? Which Risks? And which Opportunities should be pursued to protect and create the most value? That’s the PRO dilemma.
The PRO Plan
The Decision Empowerment Institute’s PRO risk-mitigation plan rests on the theory that the health and well-being of individuals directly influences a company’s cash flow and, therefore, a company’s health and well-being. In the life sciences, issues that can affect cash flow include poor sales due to lack of product efficacy, product recalls, safety issues, etc. In this way, quality is the backbone that supports a business and allows it to thrive.
The idea that cash is king is not new. In fact, risk-adverse businessman Warren Buffet was interviewed on Bloomberg about his interpretation of the saying, “cash flow is king.” He says he never wants to be unable to conduct a new business venture due to lack of cash flow, and the amount he like likes to keep around may be surprising.
To put it simply, it doesn’t matter how much profit is expected to come in if there’s nothing in the bank in the meantime. If you have no working capital, your business may be dead in the water. You may not be able to obtain the supplies you need to continue manufacturing, and employees will probably not hold off on cashing their paychecks until the profits come rolling in. In short, you need cash flow to maintain a healthy, vibrant business.
In the life sciences, issues that can impact cash flow need to be effectively managed. But how is this best done, given that there’s always an opportunity cost of pursing one action (ie, mitigating a certain risk or pursuing one opportunity) over another? Another known businessman, Benjamin Franklin, said it best when he coined the term “time is money.”
Putting the Plan into Action
In the life sciences, issues that can affect cash flow include clinical holds on new products, stock out from delayed tech transfer, glass-vial breakage, below-sales forecasts, and so on. Any of these things can impact cash flow by, for example, keeping a product from reaching the market on time, increasing manufacturing costs, and slowing sales. But which risks should be mitigated first, and then which opportunities should be pursued over others to create the best value?
PRO’s risk-mitigation plan paired can be used to make these determinations by asking the decision-maker to consider the following 5 questions:
1. What are your PRO items?
Below-sales forecast for products/services (Problem)
Unreported adverse drug events and inconsistent NDA safety database (Risk)
Improve clinical trial supply forecasting (Opportunity)
2. Which, if NOT pursued, erode the most value?
3. Which, if pursued, create or protect the most value?
4. Which should you pursue?
5. What are the implications to your plan and budget?
Can you, as a stakeholder in your organization, answer these questions? A solid risk-mitigation plan may include enlisting the help of a life-sciences consultant specializing in this area. Another way to think of this is “it takes money to make money.” Spending $300k on support staff during an NDA submission, for example, may protect $14MM in potential loss. And that’s just good business.
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Presenter: Brian Hagen, PhD. Risk Management from Stanford and Internationally Recognized Authority On Decision Making
Host: Tita Tavares and Rob Johnston of Enterey Life Sciences Consulting
Date: Thursday October 18, 2012
Time: 11:30 am Pacific | 2:30 pm Eastern
Duration: 45 minutes
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PRO Dilemma Part 2