What is a Risk?

A risk is an occurrence or sequence of occurrences that have the potential to influence your business in a positive or negative manner. When it has a positive effect, then the risk is referred to as an opportunity. When it has a negative impact, then it is known as a threat. This blog entry will focus on the threat aspect of risk management.

What is a threat?

A threat is a risk that has the chance to prevent you from successfully delivering your product or service to your desired standard or at all.
Risk Management.

One cannot deal (mitigate or manage) with a threat unless the threat is identified. Thus, the first thing to do is to make sure that you and your organisation are continually and actively seeking out this type of risk. Secondly, it is vital that the organisation has a culture that individuals feel confident their managers will not chastise them for raising the risks. Too often people are viewed as resistant to change, when the reality is they are very good at risk, (and therefore) threat identification. It is only in a culture where feedback to leaders is accepted, that you are in a strong position to identify risks at an early stage.

After the threat has been identified, the next thing is to assess it. It is important to ensure the threat is fully understood in as much detail as possible and then develop early warning indicators that will signal the threat is becoming a reality.

Tools that can be used to understand the threat include:

Risk workshops
Probability trees
Probability Impact Grid
Pareto Analysis
Expected Value Analysis
Monte Carlo Analysis

At the earliest opportunity, the threat should be recorded, analysed and an owner for the threat should be appointed. This is the person who is in charge of the management, surveillance and monitoring the threat. They are also the individual responsible for initiating appropriate responses, should the threat become realised.

Once the threat has been managed or mitigated, the risk owner should ensure that the story of the threat is recorded for posterity. The events that led to the identification of the threat, the responses and outcomes should be captured and deposited into the organisational memory as lessons learned. With this vital information banked for the future, you are ensuring should similar circumstances arise, that your organisation will be ready and have a potential off the shelf solution at hand.

The ability to mitigate, reduce and avoid threats, coupled with the assurance that your organisation is going to be better prepared for future events, are the reasons you need to understand and implement risk management in your organisation.

Managing risks becomes second nature to the intelligent business.  Performance Works is a people and organisation development company in the North East of England.