8 Steps To Effective Risk Management
By Dan Light
Risks are an inherent part of every undertaking. Getting up in the morning has it’s risks but we don’t think about them in a structured since, we just accept it and go on with the day. As the things we do get more complicated the number and amount of risk increases. Such is the case with most projects undertaken in the business world. Does this mean that we should ignore the risks and go on with the day or does it mean we should spend time worrying or fussing over each risk. Approaching the situation in either fashion doesn’t constitute risk management and will end up doing more harm than good, personally and professionally.
A good risk management effort begins by thinking about risks in terms of them happening (probability) and damage done if the risk is realized (severity). Assigning both a rating .01 to 1 and multiplying the two numbers gives you a good indication of how much time and worry needs to be spent protecting yourself (criticality). The higher the criticality the more time that needs to be spent on mitigation and contingencies.
In the example of getting up ion the morning we don’t think of the probability that the sun won’t rise even though the severity would be quite high. Likewise, loosing your place in a book may have a high probability of occurring but the severity would be negligible.
Once you begin defining risk in terms of probability x severity, or criticality, you’re on your way to developing a solid risk management process. A good approach to risk management begins by;
1. Identify potential problems and their characteristics so they can be quickly identified and dealt with
2. Determine the root cause of the problem
3. Understand the problem’s impact if it occurs
4. Calculate the criticality
5. Investigate alternatives
6. Prepare contingency plans
7. Assign responsibility and communicate essential information
8. Monitor the status of the potential problem
Dan Light, Principal, Dan Light Consulting, LLC is considered one of the world’s leading management consultants and advisors. He specializes in business development, turnarounds and business coaching.
His focus has been to double smaller companies, often in weeks, and to similarly increase the output of his larger clients by identifying root causes and removing the obstacles that have prevented their success. He achieves these results by helping clients:
develop or hone business skills,
remove self imposed limitations,
identify/implement sound business systems
He transforms potential into exceptional performance. mailto: firstname.lastname@example.org