From the Archives :: Seven Steps to Make Risk Work for You

Risk is an inevitable part of business (and life), and I thought I'd share a post pulled from my archives to offer suggestions to keep in mind to optimize your outcomes.

Original Post Date: July 24, 2012

If you’re like most people, when you hear anyone mention risk, you probably cringe or want to run and hide. Some of you might want to respond by crawling under your desk at the mere mention of this four-letter word.

We’re all programmed to limit risk and to avoid possible pain it might bring. Well, most of us are anyway. However, in the end, you do have control and can make risk work for you.

The biggest thing to understand here is that risk is truly a tool that you can use. It’s a measuring stick that you can use to drive decisions, not simply stop them. What you may not realize is that you’re already using it, if only subconsciously. When you get out of bed in the morning, you’re taking a calculated risk. When you start your car and back out of the driveway, you’re taking a risk, especially in my neighborhood. When you order your grande decaf mocha latte… well, you get the picture.

In the title above, I promised seven steps, so let’s get started.

1. Acknowledge your risk?– Like many multi-step programs, the first step is recognizing potential outcomes. ?What could happen if you move forward with a decision? ?How about not moving forward? ?Be honest. ?If you aren’t, then you’re only fooling yourself, which is a recipe for failure.
2. Gauge your return?– What is the reward based on the expected outcome? Is it worth the risk? Answer those questions and you can move to the next step.
3. Determine “what’s acceptable”?– The intent here varies depending on the situation. For example, when developing software, we balance the amount of testing with the potential impact of a bug making it into the next release. We don’t have an unlimited amount of resources (people or time), so we have to decide on and agree about how much testing is truly “enough” for our purposes.
4. Develop your plan?– This should be as formal as need dictates, which depends on the potential impact. What's important is you have a way to track progress and status.
5. Make your decision?– Even though you’re five steps in, this step is just the beginning. ?Well, the next beginning. ?After you pass this point, you may find yourself cycling back through the first five steps, since this process can and should by cyclical.
6. Execute?– Put the plan into action. ?Very rarely does everything go according to plan, so be prepared to adjust. ?This might mean working through the first five steps again, if only on a smaller scale. Communication is also a big key here. That means communication to the stakeholders as well as those involved in the implementation.
7. Measure?– Review the outcomes and learn from them. ?What worked? Can you avoid the parts that didn’t work???Can you reproduce success again? The worst thing you can do here is fail to learn from what happened. Take advantage of your learning here and apply it in the future.

You may find other methods to approach risk management and you should find a process the works for you - see the Risk Management Framework (RMF) developed by the National Institute of Standards and Technology (NIST) as one example. ?Regardless of which process you follow, it’s important to understand your tolerance for risk.

Overall, the key takeaway here is, rather than run from risk, embrace it. It’s not just a four-letter word, so use it to your advantage.