Let`s start with a simple definition of Risk.
A risk is something that may occur that would impact your planned outcomes, in most instances the focus being on negative impacts.
When we take the time out to identify those risks that could negatively impact us we then make a conscious decision as to what we wish to do about them, for example we:
- Accept the risk
- Transfer the risk
- Minimise the risk or
- Put plans in place to deal with it if it materialises.
The basis of this decision is normally a correlation of the potential impact, the likelihood of it occurring and the cost of doing something about it. In some cases we even lower our expectations of achieving outcomes as a direct response to the risk rather than tackling the risk itself.
Where risk management is integrated into the DNA of the organisation, normally you will find strong frameworks and processes that manage this process efficiently and effectively. You might be surprised to find that, in fact, these organisations take more risk than those without. But why?
The sporting analogy – the offensive vs defensive approach
Let’s look at cricket for a moment. Back in the day when cricket introduced a hard leather ball, the chances of a batsman fearing and indeed getting seriously injured (impact) were high and hence the ability for them to stand and deliver a century were remote (outcomes).
The Bodyline series saw head high bouncers sent like rockets down the pitch, resulting in the batsman avoiding the ball and therefore injury rather than going after it and scoring runs. Later, in the 1970s, short-pitched fast bowling became a standard strategy to intimidate batsmen. So to mitigate this risk cricket responded by introducing a series of protective clothing and accessories allowing the batsman to stand tall and deliver without the fear of serious injury hence all but neutralising the risk whilst the bouncers kept coming.
Had cricket responded in a risk-averse way by softening the ball, changing the bowling rules to overly limit attacking bowling or similar changes they would have reduced the spectacle of the game. Instead they applied risk management to help achieve the outcome of mitigating risk to the batsman rather than compromise the vision.
Equip your business teams for risk management
This analogy is equally applicable to the business world. Through having mature processes to manage risk in the context of impact on outcomes (rather than manage outcomes to the risk) organisations can effectively stand and deliver their desired outcomes against the bouncers that are thrown at them without fear of failure.
The risk management process therefore helps to provide the body armour needed for projects to deliver and in turn allows an organisation to take on more risk in achieving their outcomes (albeit in a controlled and calculated manner). So when the ball does connect the pain is temporary and the batsman can continue on.
A strong management culture for positive impact
In summary a strong risk management culture makes a positive impact for the business by allowing the business to take on more risk without compromising its vision and objectives.
By focusing on achieving the outcomes the business can provide for the risk treatments it needs to allow them to be achieved rather than compromising them because of the risks that exist.
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