As a leader, I am expected to make decisions all day – every day. Some decisions are huge, possibly critical to my business or people, while others are minor. Making sure that these decisions are as good as they can be at the time of decision is vital.
There is risk in every decision. Risk of failure, and risk of success. I try to reduce the risk of failure, and increase the risk of success in all the decisions I make. How do I do that, you may ask, allow me share my secret…
The Risk Process
Managing risk is not exactly a new science. Humans have managed risk since the dawn of time, trying to survive in a harsh environment. There should be no surprise then that risk management process’ exist. Depending on your sector, terminology may differ, but the steps of the risk process remain the same.
Good news: you don’t need to be an expert in risk to successfully manage risk.
The risk process can be summarized in these steps:
1. Risk Assessment
- You identify the risks involved.
2. Risk Evaluation
- Evaluate each risk and it’s severity,
- Classify them by severity and likelihood,
- Analyze the possible outcome(s) of the risk.
3. Risk Management
- Decide how to handle each risk. There are two main things you can do:
- Accept the risk: You accept that this risk may happen, and choose not to do anything about it
- Mitigate the risk: You decide that the risk is not acceptable, and choose to change its impact.
4. Evaluate and Review
You monitor your process, and make changes as you progress. You may receive new information later that changes the way you perceive some risks. The more you know, the more accurate your map.
There is risk in every decision. Risk of failure, and risk of success.” ~Kai Roer Tweet this!
How Much Risk Analysis Do I need To Do?
The answer is entirely up to you, your organization and the situation. Sometimes your decision require a rigid process where you must document and analyze many different aspects. Other decisions can be made without writing anything. The secret lies in a list of questions.
The questions follow the process outlined above, and are designed to help you make better decisions.
- Identifying risk:
What can go wrong?
What is the desired outcome?
- Evaluating risk:
What can happen if things go wrong?
What happens if we do not get the desired outcome?
- Mitigating risk:
What can I do to change the outcome?
Do I want to change it?
What did I just learn?
How can I reapply that in this decision?
- Do I make this decision, yes or no.
The last question is critical. The whole reason behind using a risk process is to help you make better decisions so you can run your company better.
As you have observed by now, each of these questions can be expanded as needed. This means that if there is an easy decision to be made, you can just run through the questions in your head. If there is a tough decision to be made you can use the exact same process and questions to document the risks involved.
One last note – there are always risks involved which we are not able to identify. I call these Blind Spots. Watch for them!
How do you manage risk in your decision making? Are you concerned with the unwanted outcomes your decisions may create?