5 Steps to Identifying and Mitigating Business Risk in Today’s World

Most of the business leaders I have worked with in my career understand the meaning of the old saying “no risk no reward.” I believe it is more true than ever, in today’s environment of world-wide competition and rapidly changing demands. The challenge is to take smart risks, mitigate your losses, learn from every interaction, and still keep ahead of the increasing competition.

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Yet I find that many business owners devote very little time to proactively managing risk, counting on their own experience, emotions, and generic processes to signal after-the-fact actions required when problems occur. The result is often scrambling to recover and rethink how to recover the business and operate successfully under the new conditions.

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I have my own thoughts as added below, but I was impressed with the comprehensive analysis of the issues in a new book, “The Leader’s Guide to Managing Risk,” by K. Scott Griffith. As one of the world’s leading experts on crisis mitigation, he shares his expertise with leaders in every industry, helping them build reliability and resilience into their culture with the following key steps:

1. Learn to anticipate, understand, and manage risk. ?Our human biases often blind us to risk. Your ability to perceive the likelihood and severity of an adverse event is also based on past experience and previous results. Improve your risk intelligence by always using relevant reliable information, ignoring biases, and seeking appropriate advisors.

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Some of the key cognitive biases that we must all be aware of and avoid as business leaders include the loss aversion bias, confirmation bias, and the bandwagon effect. Don’t let these, or your ego, impact your ability to manage risks or make decisions.

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1. Gain clarity on interactions of people and systems. ?At any given moment, every human will be less than perfect. Understanding this presents opportunities for improvement or resilience. Often, the more reliable our system, the less reliable the human. Always balance your decisions based on both human and systems behavior.

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According to science, the human brain naturally prioritizes instant gratification over long-term goals, whereas systems are neutral in both of these. Your challenge in business is to balance long-term goals against the need for quick action in every risk situation.

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1. Foresee risks and enhance systems for reliability. ?The best solutions to managing at-risk choices involve proactively developing risk-alert systems before relying on human behaviors. Use barriers, redundancies, and recoveries to reliably manage choices. Learn to make rules meaningful by helping humans understand the real risk in front of them.

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I believe a large portion of risk management and mitigation is communication – to your team, as well as customers and other constituents. Thus strong communication skills are a must for any business leader, especially in times of change or responding to risks.

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1. Survey readiness and implement risk mitigation methods. ?Find or create a set of benchmarked norms representative of best risk management practices in each of your major risk areas, and assess them against your current position. Implement risk reduction strategies and processes in all the high-risk areas that show current shortcomings.

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In my experience, one of the most effective strategies in mitigating overall risk is empowering the team to take some risk and make decisions without you. A certain level of controlled risk-taking and embracing failure are key for any business to be successful.

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1. Use independent system validation to assure success. ?A key principle of reliability is that it requires independent, third-party verification and certification of the organization’s risk readiness on a regular basis. Recognize that risk factors change over time, requiring consistent leadership and a strong team culture to assure ongoing business health.

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In every industry, there are validation tools available via the Internet, or via the author’s website. I recommend that you choose a tool early and build your operational risk management processes around it. This will minimize rework and pivots required later.

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Every leader knows that their business is built on shifting sands, no matter how long the company has been in business or how much market dominance it has today. Even one innovation by a competitor, or a single disaster, can topple even a behemoth. It’s time to adopt a well-thought-out, systematic approach to preparing for the inevitable risks that make or break success.

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*** First published on Inc.com on 12/14/2023 ***