The High-Risk Checklist Part 4: What Risk Gear Are You In? Are You Shifting Them or Grinding Them?

In our concluding article of this series, we aim to wrap everything up and provide a cohesive framework for your checklist to help you navigate high-risk decisions within your organisation. By assessing this checklist, you'll be better positioned to determine the current "risk gear" your organisation is in and how to effectively transition to the next gear.

Understanding Your Risk Gear

Drawing from my extensive experience in both high and low-risk decision-making at the executive level, I've discerned that for organisations to ascertain which risk gear they are in, they will first consider three primary levels of risk appetite: Aggressive, moderate, and conservative. They will then classify the impact with these indicators on 4 key lenses;

1. Strategic Risk: Does the impending decision align with your organisation's long-term strategy? Alternatively, does it deviate from the current strategic objectives? Furthermore, one must ponder upon the continued relevance of these strategic objectives in an ever-evolving landscape.
2. Compliance and Regulatory Risk: Is your decision in harmony with the prevalent regulatory norms specific to your industry? Occasionally, to achieve certain objectives, there might be a need to diverge temporarily from these set standards. The key is to recognise these moments and tread cautiously.
3. Financial Risk: Every decision has financial implications, spanning both the short and long term. While it's not uncommon to endure short-term financial setbacks for a prospective long-term gain, it's paramount to possess objective, unbiased data to reinforce such choices.
4. Operational Risk: This involves assessing whether the existing human capital and infrastructure are robust enough to absorb potential negative outcomes stemming from a high-risk decision. It's also essential to consider the cumulative effect of multiple concurrent risk-based decisions and ensure that resources aren't overstretched. Are there any indicators within your organisation that can inform you if it's indeed the right time for you to proceed with your decision, given the available operational resources?

Recapping our Series Journey and our High Risk Checklist

As we move forward lets first look back and summarise the foundational knowledge we've amassed from our prior discussions and use it to look at the 3 key things needed on your High-Risk Checklist:

1. Understanding Business and Risk: Business and risk have an intertwined relationship, neither existing without the other. Eliminating risk is not only impossible but a misguided endeavour. While gut instincts play a vital role in decisions, they shouldn't be the sole determinant. The first item on our checklist - Comes from the fact that every decision carries consequences, and as such, a deep comprehension of potential outcomes combined with proactive management, can enhance the likelihood of achieving desired results.
2. Pillars of High-Risk Decision Making: Regardless of its magnitude, every high-risk decision should revolve around: Understanding the Problem Definition, Contextual and impartial analysis, Justification complemented by effective communication and the ability to adapt and re-align based on unfolding outcomes.The second item on our checklist - Ensures that the decision-making process is firmly rooted in these pillars. 1. Adequate time and mental space for the involved parties to decide judiciously 2. A receptive organisational culture that can handle both positive and negative outcomes arising from the decision 3. Decision-makers that prioritise the organisation's well-being over personal gains and 4. A streamlined decision-making process that isn't mired in bureaucratic delays, thereby avoiding decision aversion or analysis paralysis.
3. Decision-Making is a Collective Endeavour: Decisions, especially of a high-risk nature, seldom occur in isolation. They demand collective intelligence and shared responsibility. It's crucial to have the right people, equipped with the necessary skills and experiences, leading these decisions.The third item on our checklist - is about choosing the right personnel. Additionally, it's valuable to be aware of and manage the decision-making dynamics stemming from diverse personalities, reminiscent of the animal kingdom, such as: 1. The Zebra – Zero Evidence But Really Arrogant 2. The HIPPO – The Highest Paid Person's Opinion 3. The Rhino – Rarely Here In Name Only 4. The Wolf – Work On Latest Fire.

The Risk Bell Curve - Managing the Chance of a Negative Impact

Now that we've established a foundation of the indicators for determining what gear your organisation is in and outlined the key elements of our high risk checklist, it's opportune to introduce the concept of the "risk bell curve."

The risk bell curve serves as a graphical representation, showcasing risk against its mean probability of occurrence. This visual tool provides a tangible way to appreciate and assess the spread and likelihood of risks.

While the possibility of a negative outcome is an inherent aspect of any risk-taking endeavour – and should, in many respects, be embraced as part of organisational growth – complications arise when multiple high-risk scenarios converge simultaneously. This overlap of risks, often referred to as 'compounding risk', provides a compelling argument against recklessly advancing through the risk gears. Imagine, for instance, one scenario with risks distributed evenly and another where risks compound. The latter situation significantly challenges the effective management of risk.

The above diagram illustrates while the negative impacts of an isolated high-risk decision might be seamlessly absorbed by an organisation, when these decisions overlap or run in parallel, the cumulative impact amplifies considerably. While the average risk of negative impact stays the same, the low chance and more concernedly the high chance possibilities increase exponentially.

Concluding Thoughts

With a clearer perception of risk essentials, risk perspectives, and the significance of recognising your organisational risk position, you're now better equipped to navigate high-stakes decisions.

As we close this series, I extend my gratitude for joining me on this exploration of risk.

I genuinely hope this has sparked thoughtful reflection. My aspiration is to empower today's leaders to harness risk as an ally rather than a foe. In wrapping up, remember: risk, when understood and managed correctly, can be exciting, predictable, and fundamental in its essence.