Hey, it’s Mike from PM Workshops. If you’re like me, you’re sitting at home kind of wondering what’s going on and what the future’s going to look like, and there’s just a high degree of uncertainty. So for today, we’re going to talk about is risk management in these uncertain times.
Now is a tough time for all of us, even those of us who have avoided the contagion. Our friends, families, and colleagues are affected in one way or another by this medical crisis however history has shown that these crises can also be learning experiences plus they also generate creativity and new approaches to business as usual but how can we think about the future or even the next steps when there’s so much uncertainty?
The answer lies in just that the uncertainty. As you may know, uncertainty is the basis of risk. A risk can either be an adverse risk, which we consider a threat, or it can be positive, which we consider an opportunity. Both types of risks the opportunities and the threats are equally important. The threats need to be addressed while the opportunities need to be exploited.
When we think about risk, we think about two components and that’s probability and impact. Probability is the likelihood that something may occur, and the result is the effect or the impact of what will happen should that risk occur, which becomes an incident when it does. Typically, what we do is look at these uncertainties, and we create an assessment of what type of risk that we’re looking at. We take this risk, and we put it into a risk register to better understand the risks that face our business.
With our businesses, we have a lot of opportunities and threats, and we just don’t always know what to do. We don’t know what door to open, which one has the big prize behind it or the scary giant tiger waiting to eat us.
So, we take a look at all the things that could go wrong and all the things that could go right, and then we put them into a list we begin to build a risk register. The risk register will track all of the things that we think can go wrong, as well as the opportunities. These are things to consider when building your risk register whether the risk is a threat or opportunity is it something that we want to avoid or mitigate or is it something that we want to take advantage of.
The probability of the likelihood of this occurring is it 10 percent? Is it 20? Is it 80? If the number is really low, does it matter if the number is high, then there’s a probably good chance that it’s going to happen, and we need to deal with that what’s the potential impact if the impacts low again? We may not choose to do anything. If the effect is going to have a severe impact on our business, then we need to plan for our risk response.
We can do typically one of five things
- we can reject it or do nothing
- we can accept it as just that’s part of doing business
- we try to mitigate it or lessen it right by some countermeasure
- we can transfer it, which is the idea of having someone else assume the responsibility of the risk, and we do this, for example, when we buy insurance. If a horrible event were to happen, we have insurance to cover it.
- And then finally the other opportunity to deal with risk is we delegated, or we move it to someone else right, so maybe it’s someone you pass it on to your boss or someone higher up the food chain that has the authority or the responsibility to take care of it.
These are the different options that we have in responding to risk, so we need to understand the potential impact of the risk, okay, and then what we want to do is to quantify it and qualify it so you know there’s a 90% chance that this is going to happen. It will have this type of impact on our business, and that represents a five million dollar risk, and that helps us begin to build an impact matrix so that we can understand the seriousness of its potential. We measure the different risks that face our business and create a risk response. We generate a response to which ones are at high risk or great opportunities.
In the current pandemic we’re all facing a lot of uncertainties, for example, will it be able to continue to pay my rent if I’m closed for three months so what we need to do when we think about this and to deal with this risk is to make some formative assessment.
For example, what’s the probability that my business will be closed for the next three months if I assess this? I’m going to say it’s a 60% probability what kind of impact will this have on my business, which is vast.
- You gage the probability of this risk occurring at 60% or 0.60
- The impact to your company will be 0.8, which is the highest rating since it would be a great win for your company.
- Weighted score is 0.6 x (+0.9) = 0.48
So then what I need to do is based on that risk score I need to develop some sort of risk response is that acceptable to I simply accept that probably not okay do I reject that and close my business? No, I’m not ready to do that. Is there an opportunity for me to mitigate this? What can I do? Is there something that I can do to lessen the impact, for instance. I am going to review my lease. Are there options for termination? Can I talk with my landlord about a delay or some sort of repayment plan? This rule allows you to determine what if you need to make an informed decision. You know what are the other options –Can I run my business from a shared workspace? Can I run my business from home?
If I do that and I need to get into some resource management such as if I work from home, what kind of equipment – do I need this is just for myself, or does my staff co-locate with me? Will they continue to work remotely from home?
These are the types of questions that begin to develop a risk response, and just while the uncertainty does present some concerns or some risks, it might also provide some opportunities. I need to consider both. Since I will have lower overhead and other costs, maybe I can compete more favorably with my competitor, who’s a large firm that doesn’t have the flexibility to work from home or reduce overhead.
I would go through an exercise we had the 60% probability that there will be a change, but the impact again at the 80% we have my risk score and then my risk strategy. How do I maximize or take advantage of or exploit this opportunity?
I might do some research about whether or not I can change my pricing or up my pricing. The other company charges a lot more than I do. I might have a little more latitude or a bit of flexibility to my pricing because the big company is not flexible, and they may not be responsive. Their offices may stay closed longer, or there may be an opportunity to pick up clients or solicit new clients.
To take advantage of this to exploit this opportunity, I should do things like increasing my marketing efforts. Do more networking online – whether it be LinkedIn or other places. I can utilize this opportunity once we develop a list of all of the risks and all of the opportunities, then we can begin to look at the big picture
Where are the vulnerabilities? Where are the opportunities? Generating this list at first may seem daunting, and it may be disheartening when will all you focus on is the threats, so make sure you also consider what the potential upsides are.
We want you to begin to develop a plan to develop a risk response being able to see the threats and opportunities written out. This should get you motivated to deal with them as soon as possible, right?
This process will give a step-by-step plan on how to deal with this and how to move forward.
Risk planning and risk management are part of the workshops where we teach our clients how to deal with this how to create a risk register on how to look at risks and opportunities and how to mitigate or exploit them depending on the situation.
If you have any questions or there is anything we can do to help you out, we would welcome the opportunity. We wish you all the best, stay safe, and we look forward to talking to you soon. Thank you.