As a manager at work, almost everything we do involves some kind risk the need to be cautious: 

• Your customers are no longer happy with what they are satisfied with just last year.
• A company that used to be new, small and mediocre, is now your key competitor.
• You had to deal with things outside your control which is delaying your projects but your boss and client expect you to find a quick solution to meet for them to meet their key performance indicators.

With risk management planning and a documented risk assessment process, you may confidently say that you have done your best with actions such as:

• Assess how bad can a risk can turn out to be.
• Have some options to minimize any disruptions.
• Decide which option would be more cost-effective and make common sense.

How Big is a Risk?

As a manager,  in your daily struggle to get things done, you often fail to notice that different people have different views of a particular risk.  What may be a small problem, issue or risk to someone, may destroy someone else life.

What is Risk?

Risk is often said to be ‘the perceived extent of possible loss’.   An equation commonly use to put a value to a risk is:

Risk = Probability of Event x Impact of Event

So, how do you begin to plan, assess and do something about risk?

1. Knowing the Context:

The first step would to identify threat in some context or category of risks such as:

• Human – from individuals or organizations, illness, death, etc.
• Operational – from disruption to supplies and operations, loss of access to essential assets, failures in distribution, etc.
• Reputational – from loss of business partner or employee confidence, or damage to reputation in the market.
• Procedural – from failures of accountability, internal systems and controls, organization, fraud, etc.
• Project – risks of cost over-runs, jobs taking too long, of insufficient product or service quality, etc.
• Financial – from business failure, stock market, interest rates, unemployment, etc.
• Technical – from advances in technology, technical failure, etc.
• Natural – threats from weather, natural disaster, accident, disease, etc.
• Political – from changes in tax regimes, public opinion, government policy, foreign influence, etc.
• Others and etc – …

Listing risk based on the right context can help us not to overlook critical risks and the different approaches that we can take to identify risks:

1. Firstly, run a list of context or risk breakdown structure as above.
2. Secondly, think through your organization structures and standard processes for any vulnerabilities.
3. Thirdly, ask people from other area of work for their opinion and different perspectives.

2. Estimating Risk:

With a list of identified risk, the next step is to work out the likelihood and impact of each risk.  A common approach to give  a value to a risk, is to make a best estimate of the probability of occurrence, and to multiply this the maximum probable cost of a risk.

3. Managing Risk:

Once you have some idea of the value of risks, you can start to look at how to manage a risk.  There is no point in spending money  to eliminate a risk, if  trying to control it would cost more. It may be better to accept some risk than to spend excessive time on it.

Risk may be managed in ways such as:

1. By using what you already have:

• Existing resources may include improvements to existing processes and practices, changes in responsibilities and accountability or strengthening internal controls.

2. By contingency planning:
• You may decide to accept a risk, but have a plan to minimize any impact .  A contingency plan in a crisis situation will allow you to take action immediately with minimum control.
3. By investing in new resources:
• Your risk analysis should help you consider additional measures such as insurance, outsourcing or forming a partnership to counter a risk with low likelihood but may cause a severe impact to your cash flow.
4. By being mindful
• The realm of the unknown will always be bigger than the human mind. You need to fully prepared and to stay away from possibility of any catastrophic consequence.

4. Reviewing:

Any risk analysis and management planning may be worthless without regular reviews which may be in the form of testing, auditing, inspection or regular monthly project meetings.

Key points:

• Risk analysis allows you to have some clear idea of risks that may be critical to the project and your company.
• Risk analysis is about a structured approach to thinking about risks followed by an evaluation of probability and impact.
• Risk analysis is an important part of  risk management planning and crisis prevention planning.
• Risk management involves using what you already have with contingency planning and using resources in a common sense, cost effective manner.