Improving Risk Management

Successful corporations tend to live between two extremes in the risk continuum. One side typifies the banking industry, eschewing risk as if it were the plague.  The other is the world of start-ups, where taking risk is the pathway for advancing new technology.  But within that range, there is a great deal of latitude where most companies live.  So, how can they chart a path for managing risk?

A myriad of articles have been written on the topic of risk management and usually fall within two categories – responding to risk that has already arisen, or dealing with risk within the confines of a finite project.  Let’s talk about a third category – risk that confronts the day-to-day operational activities of a typical company.  How can operational risk be mitigated?

Risk management has been traditionally defined as “… the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events[1] or to maximize the realization of opportunities.”[2]

As it relates to our third category, the theory of Alternative Management offers a related but more practical approach to risk reduction.  It involves “a perpetual process of identifying, evaluating, and implementing solutions which maximize task completion through the reduction or avoidance of obstacles to success”.

Alternative Management is based on establishing an individual and organizational mindset of maximizing the probability of task success by reducing or avoiding potential or actual obstacles to that success.  In so doing, companies do not have to rely solely on a risk manager or risk department.  Rather, they can leverage that expertise across the entire organization to build an army of fellow employees engaged in “alternative management”.

The result of implementing this philosophy is the continual elimination of, or minimization of, those issues which seek to prevent task completion.  In this instance, the term “task completion” can be thought of as any activity, from the shop floor to the C-suite.  Strategic decisions on new product introduction, market penetration, or entry into global markets all include the potential of negative impacts that would negate or harm the strategy.  Therefore, alternative management poses the following types of questions:

  • What could occur that would negatively impact the strategy?
  • What are the magnitudes and results of those potential impacts?
  • How will other (interdependent) departments be impacted by the risk?
  • What resources do we have at our disposal to avoid or mitigate those impacts?
  • What are the trigger points that would dictate a pre-planned response?
  • What are the procedures / policies that will be put in place to control the organization’s response?
  • What will be the impact to our strategy as a result of the implementation of those responses?
  • Do new risks arise as a result of our implementation response?
  • What pre-planned responses can be developed to reduce the company’s risk profile in the future?

This same style of questions would apply to all functional departments, although slightly reframed to increase focus on the pertinent subject.

At this point, some may view this as nothing more than modern-day risk management.  And, to a degree, they would be correct.  However, in Alternative Management, there is an emphasis on continually anticipating negative impacts and incorporating pre-planned responses that eliminate the potential for the impact occurring or mitigate the impact’s negative effect upon occurrence.

After your pre-planned responses are in place, assume they are not good enough and improve on them (a la “continuous improvement”).  Once improved, make them even better.  However, during this continuing effort, remember than you are also focused not only on the responses, but also on the potential causes.  Thus, risk mitigation is an integral part of Alternative Management.

The value-add of Alternative Management is the development of an organizational mindset or philosophy that permeates the company and becomes part of the corporate culture.  It provides a springboard to related concepts in organizational performance by establishing a path-of-least-resistance approach to the conduct of business – a lean approach – the most beneficial approach – the most cost-effective approach – the least risk approach – the most profitable approach – the best approach.  As a result, the benefits of Alternative Management can be readily seen in a short period of time.

[1]  Hubbard, Douglas (2009). The Failure of Risk Management: Why It’s Broken and How to Fix It. John Wiley & Sons. p. 46.

[2] https://en.wikipedia.org/wiki/Risk_management

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