Before we begin to describe what risk management is, we must first understand what risk is. Simply put, risk is an event that has a less than 1 probability of occurring, meaning that it is uncertain to occur. Although risk often connotes a potentially negative impact, risk can also bring about a positive effect. Many call these potential positive risks, opportunities. Opportunity management is its own system, science, and has its own benefits that a company can execute but this is a topic for another forum. In this article, we will be focusing on what risk management is in terms of preventing negative impacts for your program or company.

 

 

 

 

 

 

 

 

 

 

 

 

In user-friendly terms, risk management is the systematic identification, analysis, and control of potentially bad things. We take a collective look at all the possible road bumps, collisions, and traffic signs that tell us we might be steered off course in the future. These could range from budget, technical requirements, schedule, staffing, company culture, to supply chain hiccups and contracts. The key here is that every subject matter expert (SME) in your organization and those below get a voice to share what they see coming down the pipeline. When collectively we can listen to staff worries we can assess and score them, and decide how to address them, then execute a plan. 

 

 

 

 

 

 

 

 

 

 

 

 

…look at all the possible road bumps, collisions, and traffic signs that tell us we might be steered off course in the future.

 

 

 

 

 

 

 

 

 

 

 

 

Let’s say for example that you have a potential event coming down the pike that if it is not turned around in the next six months will cause a $500K upset among other unknown costs. Now on the surface that may feel like a lot of money but if it’s determined that you really don’t have a solid technical avenue to bring down the cost and committing to new market research, technical studies, or contract negotiations will actually cost you more, you have to swallow hard and accept the risk (as long as you can confirm it will remain under the X-dollar amount). You may have swallowed a $500K pill but you can rest easy because you did your homework and can rely on the assessment. We may be able to navigate better next time know the results of this issue – or perhaps we can even bring down the severity of the impact with small baby steps that don’t hurt so badly.

 

 

 

 

 

 

 

 

 

 

 

 

Sometimes accepting a risk is more beneficial than trying to control it by mitigating it or shifting ownership (also known as transferring). We could only know this however by assessing the consequence and probability of it occurring in a systematic and consistent way. Each risk may feel different to you in severity, in that emotional gut-wrenching oh-no-this-is-bad kind of way, but unless we look at the facts of the case per se, we could be trying to put out the wrong fires. 

 

 

 

 

 

 

 

 

 

 

 

 

In a lot of ways risk management takes the emotion out of your decision-making process and leaves you a pathway on which you can feel confident in the hard decisions. But the process takes some upfront investment. Not just the time to collaborate with colleagues but the effort it takes to determine your thresholds and risk appetite. What is a severe consequence to your bottom line? What would be a minor setback or major upending of your schedule? These are the measures and scales that must be uniquely considered for your organization and should not be rushed. Think of these as the guardrails that will keep you on course so you don’t turn a blind corner and suddenly hit a wall. The heart of your risk management program are these thresholds and scales so that when you see the “construction ahead, detour next left” sign you know you have the tools to proceed intelligently, precisely, and with peace of mind.