Once you’ve identified the value of the risks you face, you can start to look at ways of managing them. Look for cost-effective approaches – it’s rarely sensible to spend more on eliminating a risk than the cost of the event if it occurs. It may be better to accept the risk than it is to use excessive resources to eliminate it. Be sensible in how you apply this, though, especially if ethics or personal safety are in question.
In some cases, you may want to avoid the risk altogether. This could mean not getting involved in a business venture, passing on a project, or skipping a high-risk activity. This is a good option when taking the risk involves no advantage to your organization, or when the cost of addressing the effects is not worthwhile.
Remember that when you avoid a potential risk entirely, you might miss out on an opportunity. Conduct a “What If” Analysis to explore your options when making your decision.
You could also opt to share the risk – and the potential gain – with other people, teams, organizations, or third parties.
For instance, you share risk when you insure your office building and your inventory with a third-party insurance company, or when you partner with another organization in a joint product development initiative.
Your last option is to accept the risk. This option is usually best when there’s nothing you can do to prevent or mitigate a risk, when the potential loss is less than the cost of insuring against the risk, or when the potential gain is worth accepting the risk.
For example, you might accept the risk of a project launching late if the potential sales will still cover your costs.
Before you decide to accept a risk, conduct an Impact Analysis to see the full consequences of the risk. You may not be able to do anything about the risk itself, but you can likely come up with a contingency plan to cope with its consequences.
If you choose to accept the risk, there are a number of ways in which you can reduce its impact. Business Experiments are an effective way to reduce risk. They involve rolling out the high-risk activity but on a small scale, and in a controlled way. You can use experiments to observe where problems occur, and to find ways to introduce preventative and detective actions before you introduce the activity on a larger scale.
The Deming Wheel (Plan, Do, Check, Act) is a similar method of controlling the impact of a risky situation. Like a Business Experiment, it involves testing possible ways to reduce a risk. The tool’s four phases guide you though an analysis of the situation, creating and testing a solution, checking how well this worked, and implementing the solution.
Risk Analysis is a proven way of identifying and assessing factors that could negatively affect the success of a business or project. It allows you to examine the risks that you or your organization face, and helps you decide whether or not to move forward with a decision.
You do a Risk Analysis by identify threats, and estimating the likelihood of those threats being realized.
Once you’ve worked out the value of the risks you face, you can start looking at ways to manage them effectively. This may include choosing to avoid the risk, sharing it, or accepting it while reducing its impact.
It’s essential that you’re thorough when you’re working through your Risk Analysis, and that you’re aware of all of the possible impacts of the risks revealed. This includes being mindful of costs, ethics, and people’s safety.