Risk Management: A National Parallel and Why We Can All Be Good Risk Managers
Risk management is the identification, assessment and prioritization of risks followed by the allocation of resources to minimize, monitor and control the probability of unfortunate events and maximize the realization of opportunities or investments. The strategy for managing risk includes transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, or accepting the consequences of the particular risk.
Risk management is not just a financial concept. There are many other types of risk management. Managing schedule risk is very common. Scope risk management is another type that has many applications.
Because this is so important, let’s take a closer look at what this means. First of all, what is considered a risk? If we are going to identify risks we will need to know what to look for. I have heard risk defined as the effect of uncertainty on objectives. That definition is fine, but it is too vague. In order to effectively identify the risks of a particular project or initiative, I think you need to be a little more specific about the goal.
We practice risk management in our daily lives. We do it all day. Most of us are pretty good at it. We must be because we have overcome many days without having to discard the life project. For example, let’s look at some events on a typical day that would require some risk management. When you start to think about this, the first thing you realize is that not only the events themselves require risk management, but the interrelationship between events requires risk management. Let’s say it’s Monday and you have to get up and go to work. The process that results in you sitting at your desk at work is fraught with danger, but somehow you manage it every day.
Here is a list of things you can do to get to work in the morning:
Shower
To shave
Dress
Pick up the kids and get them ready
Prepare breakfast (suppose we do this every day)
drop the kids off at school
drive to work
To park the car
Walking from the car to the office
Each and every one of these events is important and is affected by different external influences. To make things a bit more challenging, your spouse is out of town on business. You must achieve all this by yourself. I know you may be thinking about bailing out already, but hang in there, you can do it. Plus, I’ll walk you through it.
The first step is to identify your objective. We know that your objective is to get down to work, so we start off on the right foot. Defining the goal is not always so easy. Before jumping straight into the shower, you must first make a plan to meet your goal. You have to have a plan! If you don’t, trust me, you’ll get a call from his wife around 9:30 asking why the kids are late for school and his boss will be waiting at his desk when he gets to work wondering where he is. that report. You promised to deliver first thing in the morning.
Now about the shower, but wait, if you start waking the kids up before you get in the shower, maybe by the time you get out of the shower, they’ll be ready to get up. At least go turn on the lights in their rooms. I like to move it a few times. It really bothers them, but it’s an effective move. You can also start making the coffee before you get in the shower. Every little bit will help. And don’t forget to let the dog out to go to the bathroom. If you don’t, you may regret it.
I think it’s safe for you to shower now. She has started some things that will work while she showers. She could take one of those long, lazy showers, but that would involve some schedule risk, so she’d better wait until Saturday for that. Finish your shower. Before you start shaving, turn the lights back on in your kids’ bedrooms because they probably aren’t on. Raise your voice and use the angry dad tone when you tell him to get up this time because now is the time to get serious. If they don’t get up now you’ll be late for sure.
You can go shave now and get ready for work. The risk involved in shaving is fairly low unless you’re still using a razor and haven’t switched to an electric one. Hopefully you remembered to charge your electricity; otherwise you may need to proceed to work with a 1 day shade or three days if you want to let it run over the weekend. Dressing can carry some risk depending on the type of work you do. The risk is mainly in the selection of what to wear. For most people today, this is a low-risk area.
Remember to keep the children focused as you prepare. You decided to take a little more time to prepare. You have a big meeting at work, so you had to iron a shirt and put on your suit. Because of this, breakfast is going to be cold cereal, again. You might decide to read the newspaper at breakfast but feel the need to keep the children focused. You want to know what they are doing so you can monitor their activities. You are managing its development. You have a plan for them and your plan doesn’t include a call from the police department one day.
It’s time to get the kids out of school. One of them takes a bus. You will have to take the other two to their school. Fortunately they attend the same school. There are many risks involved in taking your children to school and they start before you get in the car. You better make sure they have all the necessary tools for education in their respective backpacks. If you don’t, you risk having to turn around and hand-deliver a math folder to school again. Traveling by car carries many risks in addition to the obvious risk of an accident. Choosing the right route can be the difference between being on time or not. Hopefully, you remembered to fill up with gas the night before because you didn’t plan on the extra eight minutes at the gas station.
You’re a good driver so I’m sure you won’t have a problem dropping the kids off and reaching the parking lot where you’ll face a new set of challenges. Unfortunately, there are usually not enough spaces in the lot, so it is critical that you arrive early, otherwise you will be stuck in the overflow lot, which is a long way from the building entrance. You have plenty of materials to take to the office for a great presentation. It looks like it’s raining and you don’t want to get your graphics boards wet. If you’re stuck in the overflow batch, your presentation is doomed. You have to watch out for the kamikaze drivers in the parking lot. The competition for the final places is heated and you don’t have time to take the car to the repair shop, so you stay behind and take what you can.
Luckily you find a spot in the main lot but it’s starting to drizzle a bit. She tries to cover her presentation boards with her suit jacket. It works pretty well and you get to the office, but some of the ink from the whiteboards gets on your jacket. You will have to take the jacket to the 1 hour laundry or do without it. You decide to go jacketless so you can put the finishing touches on your graphics. Thirty minutes before the presentation, you discover that the presentation has been switched to a video conference. You have just a few minutes to compose the electronic files into a presentation and send it to the client.
You did it! You arrived at work. Again. You are an expert in risk management.
Most people are pretty good at risk management. We all have a lot of practice. The dynamics of enterprise risk management are similar dynamics to those we encounter every day. The nature of the impacts and influences is also the same. As we progress on the path to fulfill our goal we are bombarded by adversity. In the process of developing our risk management plan, we identify risk areas, assess impacts, and decide how to manage and control risk areas. This initial planning gives us the ability to handle adversity.
Like when you decided to skip breakfast entirely, we can choose to avoid the risk. We can choose to minimize the negative effect of risk as you did when you decided to run out of your jacket rather than waste time taking it to the dry cleaner and risk not completing the filing. It might have transferred some risk elsewhere if she had called her sister down the street and asked her to drive her children to school. Of course there would have been a cost associated with that. You would have had to mow his lawn or something.
Risk milestones are interrelated and connected by chronology or timeline. You reduced the risk of preparing your children by turning on the lights before the shower. You also started making the coffee before showing yourself.
The key to effective risk management is to have a system that has measurable results. Risk management for real estate development can be linked to a milestone schedule to assess and measure risk as it applies to the scope schedule and budget.
Risk management is the key to success in business. Most of us are very well equipped to manage risk effectively. Our daily activities prepare us well. You can find numerous parallels in everyday life.
Make a plan for risk management. you will be glad you did. Please check out my upcoming articles and I will describe the main levels of risk management and provide a detailed overview on how to create a risk management plan to help you succeed in the new economy.
