Risk Management is the formal tactic leaders use to identify, assess, and make provision for risks to the effort they are about to undertake. It is critical that leaders take the time before beginning any new venture (whether it is a formal project or a new approach to the departmental line of business) to conduct a risk management evaluation. If a leader undertakes any new venture without taking time to think about the risks that may occur, then that leader is really going ahead unprepared to face the things that could possibly go wrong. And since the process of risk management is not all that time consuming it is very short sighted of the leader to initiate a venture without considering risk management.
There are three personality types normally found when considering how leaders approach risk management. First, there is the risk aversive type leader. This leader will seek to avoid risk, especially as the stakes increase. This leader is the one that will choose a different pathway, or approach, to the task if there is an identified risk. That in itself is a form of risk management, simply avoid that choice.
Second, there is the risk neutral type leader. This leader will neither seek to avoid risk, nor choose the risky pathway. Also, this leader does not consider the stakes when choosing to avoid, or accept a risky approach. This leader is absolutely in need of developing a plan to deal with risk, since it is possible the risk prone pathway may be accepted.
Third, there is the risk seeking type leader. This leader will normally choose to engage the pathway that is the most risk prone, and is even more likely to choose to confront risk if the stakes are higher. Certainly it is important this leader develops a risk management plan.
When we consider risk management we also need to determine the level of certainty surrounding the risk probability. There are three levels of certainty that we will consider. They are certain, anticipated, and uncertain. The level certain means the leader can predict with 100% accuracy the risk situation and the probable outcomes. The level anticipated means the leader can predict with some certainty the possible situations and outcomes should the anticipated risk occur. The level uncertain means the leader cannot reliably predict the possibilities or outcome should risk occur. This is important for the leader to understand and factor into the planning for strategies to mitigate or neutralize risks.
What are the types of risk a leader may need to consider? In business there are four categories of risk types a leader should consider. There are project risks, which are the risks to the program itself. These risks affect such things as funding, schedule, contract relations, and there are political risks to a project or program.
Another type of risk is technical risks, which include things such as performance of the product, design risks that may occur during production, and obsolescence. Just as information obsolescence is that danger that a product may be obsolescent before it comes to market. There is also the Engineering type risk, which includes things such as reliability of the product (how well the product will hold up to normal use), operation of the product (will the product actually work as designed), maintenance (is the product maintainable), and training (is special training needed). Finally there is the Production type risk, which is considering matters such as packaging, lead times, manufacturing, and materials availability. This one is pretty much the operational aspects of the production.
Here are a couple of very useful questions to consider as one begins to assess risks and risk management. Can a leader even identify all the risks? The answer is probably not. Simply put the future is not always that clear, and especially in the production and manufacturing industry it is pretty much impossible to identify every risk. Should a leader even try to identify all the risks? The answer is probably not. (You saw that coming did you not?) For all those reasons just mentioned, and because a leader can use too much precious clock trying to think of all the risks to the venture it is better to just think it through for a specified amount of time, and then move on.
Here are some thoughts on controlling risk. Know what kind of leader you are, risk aversive, risk neutral, or risk seeking. Assess the level of certainty you have about your venture. Is it certain, anticipated, or uncertain? If anticipated, what are the warning signs? Note well the participation of your team in the process. Do they appear engaged, or accepting, or unconcerned? If unconcerned, are they leaving the risk management to the leader (you)? If so, that is not good, and you, as leader, need to engage them in the process.
Hold Lessons Learned sessions after every major milestone or event. Ensure the sharing of knowledge as silos are the most destructive risk internally to a team. Develop a mitigation strategy for your plan of risk management. It is a conditional statement that reads like this; if risk occurs or appears imminent, then the approach to reduce the damage or mitigate the impact will be as follows. Then state the strategy in simple, clear terms.
Write your risk management plan out formally. It can be a simple collection of the mitigation statements, or it can be a much more formal and involved document. There are some really good templates of Risk Management Plans available (some are free, others are not). Whatever strategy you choose, have a risk management plan. Your stress levels will certainly be reduced, and you may be able to finish the venture on time, and on budget.
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