Risk Management
Many think of it as a complex process with probability and statistics that's very difficult to apply. However, risk management is essentially asking and answering six basic questions.
Key Takeaways
The six questions are easy, intuitive, and are the type of questions anybody would ask in any important situation.
Risk management done correctly is a natural process that doesn't involve lots of bureaucracy, forms, and statistics.
Whether your trying to put a man on the moon or move an object from one side of the office to the other, the same six questions apply.
Managing risk is one of the most natural things we can do. Risk management is essentially asking and answering six basic questions. It’s the questions that everybody wants to ask, no matter what situation they're in, whether it's a personal dilemma, project, process, or some kind of organizational decision.
What are we trying to do?
The first step of the risk management process is objective setting. Understanding the scope, context, and the environment in which one is having to manage risk. Asking yourself “What am I trying to achieve?” is the first question and first step of the risk process.
What might affect me?
The second step to the risk management process is to determine if there are things in the future which could either hinder or help to achieve the desired outcome. Asking “What might affect me?” is a step into risk identification. This question determines the uncertainties that matter, the possible sequence of future events if they occurred, and if it would help or hinder trying to achieve the goal.
Which of those things that might affect me are most important?
Since the things identified in the previous question are not all equally important, asking “Which of those things that might affect are most important?” will help you determine what matters. This is the step of the risk management process called risk assessment, risk evaluation, or risk analysis. The objective to this question is to prioritize the things that might affect us into key dimensions of: “How likely is it to happen? And if it did happen, what effect could it have on our goals, either positive or negative? Understand that threatening risk includes both: threats and opportunities.
What should we do about it?
This is question is really important, because otherwise, we're just the victims of uncertainty and things might happen on our projects which we weren't expecting. Once you know what the key risks are, you can take action and and prepare some responses so that we can avoid, minimize, or protect yourselves from bad risks. Or perhaps you could try to maximize or exploit the risk. It’s better to be in a position to exploit and use the risk to your advantage if they happen.
Did it work?
Often, you’ll find that the actions you took and the response you made going into the risk did not go as planned. In this case, you have to modify your approach when faced with this same risk in the future.
What changed?
This is the most important question. Projects, life, and business are very dynamic and constantly changing. You need to make sure that you spot the new risks that have arisen since the last time you took action.
These six questions are easy, intuitive, and are the questions anybody would ask in any important situation:
What am I trying to achieve?
What might affect me?
Which are the important ones?
What can I do about it?
Did it work?
What's changed?
If you build your risk process around the six simple questions, then it becomes a natural process that doesn't involve lots of bureaucracy, lots of forms, lots of statistics, we're just asking and answering important questions.
Of course, on a bigger project, these six questions are applied at a more detailed level. But at its root, whether your trying to put a man on the moon or move an object from one side of the office to the other, the same six questions apply.
So next time, you're tempted to think that risk management is really difficult, just remember the six questions. Ask them, answer them, and manage your risk.