Are You Taking Enough Risks? Or is Undue Caution Holding Back Your Business?
Added: (Sat Apr 12 2014)
Pressbox (Press Release) -
An interpretation of Risk Management as an attempt at eliminating or minimising every risk, sometimes leads businesses or other organisations to miss out on opportunities to maximise profits or achieve other desirable goals. This view fails to see the need to balance one risk with another or to fully evaluate the costs and benefits of different courses of action.
I am concerned that overzealous or one-sided Risk Management can be harmful to business and other activities. Please do not misunderstand me. I do not advocate a cavalier attitude that would treat lightly anything which could lead to someone’s death or serious injury, to extensive damage to property, to the loss of large sums of money, or to serious damage to the environment, nor do I underestimate the harm an ill-judged word or deed can do to a hard-won good reputation.
However, it is easy to over-react and take excessive defensive measures. I suspect that the man who said “I’m not afraid of flying… just of crashing” probably thought the only way to be safe was not to fly, not knowing that in fact modern airlines have such good safety arrangements that the most dangerous part of your flight is likely to be the drive to the airport!
What are the causes of this over-cautious attitude?
1. The natural and justifiable concern to prevent undesirable consequences of our actions, sometimes taken to an extreme.
2. Lack of communication between managers, insurers and Health & Safety, leading to knee-jerk reactions rather than properly considered solutions.
3. The requirements of funding agencies and regulatory bodies, often lacking in detailed knowledge and understanding.
4. The culture in some organisations, where failure is punished more than success is rewarded.
5. Fear of being sued as a result of the Claims Culture, especially in the light of a few well-publicised high-cost cases, sometimes with unexpected outcomes.
6. Fear of adverse publicity if the press should take a one-sided view of an incident, regardless of the real blame.
Why is a strong dislike of taking risks wrong? Does it matter?
1. The actual risk may be very different from our impression, and so our response may be inappropriate: many New-Yorkers would rather drive in frustratingly slow traffic than take the often faster subway, out of fear of mugging, when more people are killed in road accidents than in violent robberies.
2. Control measures may be more costly than is really justified, in terms of their effects on productivity: in fact there may be so much pressure to “do something” that controls are introduced which are totally ineffective or unnecessary, like the cowboy who wore two guns in case he missed six times and was still alive!
The Balancing Act.
Above all, this attitude of excessive caution fails to recognise that all management (not only Risk Management) involves making choices which require balancing one risk against another, such as that of making a loss by spending too much on control measures.
General McClellan commanded the main US Army in the early part of the Civil War. He was concerned for the welfare of his men and wanted to avoid throwing lives away needlessly, so he always waited for the ideal opportunity before going on the offensive. Sadly, he lost more men to disease in his large static encampments than were killed by the enemy. He was too focussed on one risk to the exclusion of another.
More recently there was some controversy over the failure of some schools and other organisations, to carry on during the Big Freeze of 2010/11. There was a need to balance the risks to people in trying to work, or even get in to work, in those conditions, against the risks to the organisation, as well as to those using its services, in failing to maintain some of its activities.
What can you do about it?
1. Fully assess each risk, looking at both the probability and the severity.
2. Consider all the implications of each potential control measure.
3. Take into account financial and non-financial costs and benefits.
4. Recognise that accidents do happen, however hard you try to prevent them, and be prepared to accept some of the consequences.
5. Have damage-limitation measures ready.
6. Manage the reputational aspect of your risks by being prepared to respond to the press and public in the event of (even remotely) foreseeable incidents. Try to prevent unhelpful or ill-thought-out remarks from colleagues or employees getting into the social media.
7. Consult. Although the manager of the activity does need to be the one who manages the associated risks, it is also important for someone not quite so involved to have a look as well, to bring some objectivity and to challenge well-established assumptions. It could be someone within your business or an outside consultant.
So do not let undue fear of risk stop you making a success of your business or organisation. Wherever possible, think in terms of positively managing rather than avoiding risks. The requirement to have a man carrying a red flag in front of every motor vehicle may have prevented a lot of accidents in its day, but most of us would agree that removing that restriction has benefited society a great deal, and other measures have been brought in to improve road safety whilst allowing cars to travel faster than pedestrians.
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