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Risk management is the set of actions taken to avoid or reduce potential risks inherent in any goals (outside one's comfort zone). Naturally, one does not take the time to set a goal unless it: 1) offers sufficiently attractive benefits/gains (a compelling future), 2) is somewhat challenging (so that it requires a plan of action to manage the effort), 3) represents a fundamental change in the status quo, and often times, 4) involves challenge and forbearance to attain. The last element of a goal - the challenge - implies the potential for risk (the chance that the action plan will fail as initially drafted on the first attempt and will take corrective action to attain the same goal). This is the point were a clear and decisive action is demanded. Before committing to the pursuit of a goal, one must make an assessment of the relative opportunities relative to the costs of the effort. One of the costs or downsides of the effort is the potential for failure or a higher cost to achieve the goal than estimated. At the front end of risk management is decision making under uncertainty.. One must decide whether or not to proceed to implement the action plan for goal achievement, given the uncertainty of the future and the possible falsehoods of the assumptions that are built into the action plan. Note every action plan has a number of assumptions built into it (some known and some unknown. Most risks will emerge from these assumptions. In the end, one must make the decision based on the expected relative value of benefits minus costs (including the risk cost). There are many opportunities awaiting everyone in their lifetime that makes the pursuit of goals, and their attendant risks, worthwhile. There are some opportunities, with attendant risks, that if not taken, will significantly degrade your potential for a higher quality life.
Some opportunities are worth the risk. C. W. Sooter
Once a goal is selected, whatever the initial risks and upside opportunities, they are now locked in. Decisions still must be implemented. Both before and during implementation, the decision maker can still influence the success of the execution Not can the decision-maker pick the implementation plan but they can change and improve it over time, steering it incrementally towards the finish. All the while, the decision maker is attempting to minimize the chances and impacts of potential risks while maximizing the chances of potential opportunities. During the time it takes to implement the decision, much can be done to steer the project towards the opportunities and away from the risks. This requires a continuous, proactive risk management effort. A standard risk management process is shown below. More detail about each step can be found by clicking on each blue highlighted subject above.
Once an alternative is selected that best satisfies the original need, the alternative still needs to be implemented. There is usually more than one way to implement an alternative. The decision-maker now shifts from deciding how best to satisfy an identified need to deciding how best to implement the decision just made. Deciding how best to execute the decision - the alternative selected - is the next step in satisfying a need. A need is not satisfied just by making a decision but by implementing the decision. The effectiveness of the selected alternative should have been one of the factors (criteria) considered before it was picked. Now, the relative efficiency of executing the selected alternative must be considered. The decision-maker must now pick an implementation plan, one that gets the solution completed as soon as possible for no more than the expected cost (time, energy, and resources). Plus, the decision-maker wants to avoid risks that something unforeseen could go wrong in implementing the decision to cause delays, extra costs, and a reduction in the eventual satisfaction of the original need. The implementation plan is the means by which a decision is implemented.
Unforeseen problems (risks) can and normally do develop during the execution of any implementation plan. For that reason, it is worthwhile to anticipate these risks before finalizing and starting the implementation plan. If risks are present at the beginning, they are likely to surface one way or another during the execution. Every risk that manifests itself can cause deviations in the implementation plan that will require the person or team executing the plan to take corrective action to remedy the deficiencies. In the words of Napoleon Hill, "The majority of men meet with failure because of their lack of persistence in creating new plans to take the place of those that fail." From a risk management perspective, when unforeseen difficulties (risks) strike, corrective actions needs to be quickly taken to get the implementation plan back on track. While not all undesirable contingencies can be anticipated in advance, the more risks that can be headed off with pre-emptive preventions, the better the execution will flow uninterrupted. And the fewer the corrective actions that will be necessary during the implementation.
More specifically, a risk is the chance that the outcome from your investment of time, energy, or resources will be less than what you were expecting due to problems encountered while executing the implementation plan. In an uncertain future, the final result of implementing any alternative can vary over a array of outcomes, ranging from better (opportunity) to worse (risk). Some outcomes could generate better results and some worst results than what was expected when the alternative was evaluated and eventually selected. The upside potential for better results is called the opportunity for a windfall, bonus, excess profit, or an abundance of rewards beyond the expected. The downside potential or getting less than what you expected is called risk; other names include disappointment, regret, loss, etc. If the eventual implementation of the chosen alternative could end up leaving them in a worst position that if they hadn't made the investment, then this decision is one of high risk. Some examples of high loss might include job termination, going to jail, bankruptcy, law suits, injury, loss of life, etc. The better alternatives offer more potential for upside opportunity than downside loss or risk. As shown in Figure 2 on the Rewards page, alternatives whose opportunity-to-risk characteristics fall in the blue and green areas represent the better choices. Any alternatives whose opportunity-to-risk characteristics fall or plot into the region with low rewards and high risks - the yellow and red areas - represent inferior choices.
So, for decisions with some uncertainty, the decision-maker should consider the potential for implementation risk as one of the evaluation criteria before making the final selection of the best alternative. Then after making the choice, the decision- makers should spend time finding different ways to execute the decision choice and then choosing the most efficient one among them. This section on risk management is intended to aid the decision-maker in identifying the weaknesses of the implementation plan and bolstering them with remedial actions if the risk is high. There are specific pages in this website that deal with each of the risk management steps. Just select a blue highlighted subject and click.
Organize: Define the methods, tools, and staff who
will manage the implementation plan so as to reduce risks and grow
Identify: Search for risks or weaknesses in the project implementation plan where problems could develop.
Root Cause Analysis: Delve deeper into the investigation of a risk to determine what is causing it.
Assess: Rate the risks for severity based on likelihood of occurrence and the risk's consequence if it should occur
Mitigate: Develop proactive efforts to head-off problems, strengthen known weakness, and avoid undesirable contingencies.
Monitor & Correct: Watch the work in progress and responding to any deviations from the plan with remedial actions to recover any deficiencies.
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Website last updated on 6/12/11
Copyright ©2005 Charles W. Sooter. All rights reserved.