Every day we have risks. Just the other day I was sitting in the passenger seat while my husband was driving through the windy twisty backroads in the outskirts of Nashville. Around the corner comes a car and it’s on our side of the road, the driver oblivious to the fact they were on our side (thanks to a cell phone in their hand held to the ear.) Fortunately we avoided meeting that person.
Risks are all around us. Risks could be a “low probability” such as getting hit by lightning. Yes, it could happen but your actual odds are low. It could be a risk that is easily planned for such as wearing your seat belt to prevent injury in a car accident. Or maybe the risk could be eliminated all together with a few process changes, like looking both ways before you cross the street. Or as I found out while in the UK, to look the opposite direction I was used to.
In business, risk assessments help teams ensure that the right focus is being applied and sufficient actions taken to protect the business operations. First, the potential risks have to be identified. The simplest approach is to think of potential risks by functional area, like supply chain, IT, or facilities. Once the team has identified all the potential risks to that functional area, the next step is ranking them.
- Probability of the risk happening
- Severity if the risk happens (from potential loss of life to loss of business)
- How easy is it to detect if the risk is actually happening
Using these ratings, a risk value can be calculated. Each business is different in how much risk can be tolerated. Low risk values require no further action. High risk values require actions to lower the risk. Medium risk values could go either way and should be assessed individually on whether any action is required.
Lowering risk in business ensures the health of the company. Customers are protected, Shareholders are protected, Employees are protected. Being pro-active in the management of risk ensures initiatives can be prioritized and adequately resourced.
Take the time to think through your risks. It will save you, your team, and the company future grief.