5 Questions I ask for Better Risk Management

Risks have a tendency to create fear, which can quickly turn into inaction.

In those moments, it’s always better to lead with questions than it is to be paralyzed with fear. I’ve discovered that sometimes going through a simple 5-question framework adds insight and shows that things are not as scary as they seem at the outset, or vice versa.

Here is my 5-questions framework:

1. What is the probability of this risk occurring?
2. If the risk occurs, what will its short-term and long-term consequences be?
3. If the risk occurs, how long would it take to get back to Point Zero?
4. What can I do to reduce the probability of the risk occurring?
5. What can I do to reduce the severity of the impact?

Personally, regardless of the short-term consequences, if the long-term consequences are negative, I try to stay away from it.

Also, Point Zero refers to the starting point. For example … say you saved $10,000 and are considering investing it. If you lost some or all the money, how long would it take you to have $10,000 in savings again? Point Zero in this case is $10,000 in savings.

What does your decision process look like? How do you think about risk management?