“Don’t be fearful of risks. Understand them and manage and minimize them to an acceptable level.” ― Naved Abdali, Author of Investing Magazine
Risk is defined as “the possibility of loss or injury.” Quite simply, risk is the possibility of something undesirable happening.
We deal with risk every day…. We could be hit crossing the street, or driving our cars, or falling in the shower. All possible, undesirable risks. The same relates to business as there are risks that threaten the ongoing success of any organization.
As we continue our discussion on signs of operational effectiveness, managing risks is critical for sustainability and growth. My father used to regularly ask me “what is the worse that can happen?” This was his way of getting me to consider the risks of actions I was about to take so I could determine if even with the greatest risks, it was worth moving forward…. Or not.
How does an organization address risk? There are several factors to consider related to risk management:
- Avoiding risk is unattainable; but there are many methods to mitigate the risks an organization faces.
- Building a risk assessment into every project, initiative, and/or program encourages mitigating those risks that could arise.
- Understanding possible risks allows an organization to be proactive versus reactive.
- There is a higher probability that a project or initiative could fail if there is not an effective risk assessment built into the project plan.
- Establishing a standard risk assessment process and methodology encourages long term success.
- It is important to manage the cost of risks including considerations for ignoring risks and taking no measures to address those risks versus placing too much importance on a risk and utilizing extraordinary resources when the risk is not that great.
- A risk assessment should be built into the annual planning process.
Utilizing risk management within an organization encourages operational effectiveness.