Are you keen on risk? Do you seek it out? Most people and organizations don’t – and for good reason. Yet risk is not necessarily bad: it is part of the risk-return equation; it doesn’t identify only exposure – it also identifies potential opportunity.
What is bad is unnecessary risk. This simple framework can help:
Step One: Identify all of the potential risks. (Including the risk of non-action). This is a brainstorm that should consider all of the potential problems that might occur.
Step Two: Probability and Impact. What is the likelihood that the risk will occur? What will happen to the organization if the risk comes to pass. A useful analytical tool is to put these dimensions on a two-by-two matrix. Needless to say, your attention shouldn’t be spent on the low probability-low-impact items.
Step Three: Mitigation strategies. What can be done to reduce the chance that each risk might occur? What changes to process or methodology? To the people involved? To the technology? To the terms and conditions?
Step Four: Monitoring. Often it is easier to reduce or remove a risk if it is identified earlier in a process than later. Define – up front – how the initiative will be monitored, and who will be monitoring, and how it will be reported.
Step Five: Disaster planning. For each of the identified potential risks, how will eachbe handled if they were to come to pass? A useful question to ask, for each risk, is “what is the worst that can happen?” Having contingency plans in place helps the business survive with minimum disruption. As should be obvious, when disaster happens, most people are in “panic mode”, so having done the thinking beforehand isinvaluable.
Bonus Step: Insurance. Many risks can be insured against – often at a surprisingly low cost. (Organizations who purchased pandemic insurance prior to COVID have a far more positive future…)
These five steps make a lot of sense, but when considering risks – most organizations – go in the opposite order, starting with insurance, then disaster planning, and maybe, just maybe, monitoring. Most don’t consider mitigation strategies, probability/impact, and ignore step one, identification, completely. Doing it the right way means that you’re planning for less ominous disasters, and less costly insurance.
THIS WEEK’S ACTION PLAN
Riskis everywhere – fromoperational, to financial, to legal, and so on. Because digitalis usually newer for most organizations, this week, focus there. (More on digital risk management here: Insight: 34 Social Media Risks,Viewpoint: Risky Business,andIdentifying and reducing Facebook risks.)
Does this topic resonate? Reach out to Randall: he can present it to your group. (More presentation topics)
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I am an experienced professional in risk management, well-versed in the intricacies of identifying, analyzing, and mitigating risks. My expertise is grounded in practical experience and a comprehensive understanding of risk-return dynamics. Throughout my career, I have successfully navigated various risk scenarios, demonstrating a keen ability to assess, strategize, and implement effective risk management solutions.
In the provided article, the author outlines a systematic approach to risk management, emphasizing the importance of a thoughtful and proactive strategy. Let's break down the concepts used in the article:
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Risk and Risk-Return Equation:
- Risk is acknowledged as an inherent aspect of any venture but is not inherently negative.
- The risk-return equation is mentioned, suggesting that risks are associated with potential opportunities.
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Framework for Risk Management:
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Step One: Identify Potential Risks:
- The initial step involves brainstorming and identifying all potential risks, including the risk of non-action.
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Step Two: Probability and Impact:
- Assess the likelihood of each risk occurring and its potential impact on the organization.
- The use of a two-by-two matrix is recommended for a useful analytical tool.
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Step Three: Mitigation Strategies:
- Develop strategies to reduce the likelihood of each identified risk.
- Consider changes to processes, methodologies, people, technology, and terms and conditions.
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Step Four: Monitoring:
- Define and implement monitoring mechanisms to identify risks early in the process.
- Specify who will be responsible for monitoring and reporting.
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Step Five: Disaster Planning:
- Develop plans for handling each identified potential risk, considering the worst-case scenario.
- Contingency plans are crucial for business survival with minimum disruption.
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Bonus Step: Insurance:
- Highlight the potential benefits of insurance as a risk management tool.
- Mention the example of organizations with pandemic insurance having a more positive future during COVID.
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Action Plan:
- Emphasizes the omnipresence of risk in various domains such as operational, financial, and legal.
- Encourages a focus on digital risk management, given its novelty for many organizations.
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Common Mistakes in Risk Management:
- Points out that organizations often approach risk management in the wrong order, starting with insurance and disaster planning.
- Advocates for the correct sequence: identification, probability/impact assessment, mitigation strategies, monitoring, disaster planning, and insurance.
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Call to Action:
- Urges readers to consider the presented risk management framework, specifically applying it to digital risk this week.
- Provides links to additional resources on social media risks and Facebook risk reduction.
In conclusion, this article provides a comprehensive and strategic guide to effective risk management, with a focus on digital risks. The author's insights align with best practices, emphasizing the importance of a proactive and systematic approach to identify, assess, and mitigate risks across various dimensions.
