Michelle Symonds of TechRepublic UK recently argued that risk management fails to effectively address ‘real’ project risks, which she calls ‘the unknown unknowns.’ In her article, Michelle questions the value of Strategic Risk Management within the business, asking whether risk planning and management really serves a practical purpose, or “is it simply designed to provide a get-out when problems start to occur, or an explanation of why the budget is over-running?”
While Michelle makes some compelling points about the attitude of Businesses when it comes to managing Risks – such as her argument that many Businesses often fail to differentiate between some risk factors, instead implementing plans that are ‘little more than a standard template that lists the same risk factors for every project,’ one of the biggest mistakes a company can make in Strategic Risk Management – her argument that Risk Management does not serve a purpose is very much up for debate, particularly in an ever-developing Industrial world that has seen the role of Risk Management within the Business do nothing but grow.
She may be correct in outlining the failure of Standard Risk Management to fully account for unpredictable risks however, if implemented properly a successful Risk Management Strategy will help mitigate the possibility of a loss when the unexpected comes around.
Risk Management: A Definition
Douglas Hubbard, author of the book: “The Failure of Risk Management: Why it’s broke and how to fix it,” defines risk management as “the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events.” When it comes to unpredictable risks, Hubbard’s indication that ‘control’ is one of the key aspects of Risk Management gives us a clear projection of how the ‘unknown unknowns’ should be treated. After all, Risk Management is about managing Risks, not necessarily preventing them. Taking this into consideration, it is inherently possible to control the unknown unknowns as they come, and here are some suggestions on how you can amend your policy to do so.
Stress-testing is becoming an increasingly popular trend in large Businesses across the US. This involves deliberately setting up a situation that tests employees’ ability to handle the pressure of a risk occurrence, which in this case could be an unpredictable risk like a weather-related risk event. By carrying out stress-testing, you will be able to evaluate your employee response to situations that may occur but cannot be predicted. This will help you address vulnerabilities and ratify your policy accordingly.
Fear is one of the most important factors to consider when it comes to assessing risk. While fear can help you keep on your toes, it is important not to let it hinder performance and the overall business process. Fear of the unpredictable will automatically cause a focus on potential negativity, but if you are to shift this focus to a more positive outlook, you can account for the ‘unknown unknowns’ in a manner which lends itself to success.
Unpredicted risk events will occur, often on a daily basis, in different forms and on different scales. However, with continuity in your Risk Management Strategy, you account for these risks as they come and ultimately protect the long term future of your business.
Risk Management can be a difficult topic to understand. If you need anything cleared up, the speak to one of our experts for free.