It is impossible that improbable will never
happen.
-Emil Gumbel,
Mathematician
Risk is part of every
endeavor. By analyzing your situation,
you can determine the risks associated with a course of action and then reduce the
risk to improve your chance of success.
I have spent a lot of
time in risky situations and I have found that understanding the associated risks
will improve your chance for success. As
a military pilot, I accomplished an Operational Risk Management (ORM)
evaluation before each mission. ORM
allows you to quantify the risk you face and determine if a mission is worth
the risk. I have used risk analysis in
business to determine if a startup business was worth the investment. I have also used risk analysis as an
emergency manager and as an emergency management instructor; risk analysis allows
the emergency manager to determine what mitigation steps should be taken or how
to prepare for a possible disaster. I
have diverse experience and I have found risk analysis improves the chance of
success, saves lives, saves property and improves profitability.
What is risk? From Merriam-Webster: 1- possibility of loss
or injury, 2- someone or something that creates a hazard. I have a simple definition; risk is the likelihood
a hazard will occur. A hazard to a
business is the loss of a large customer; a hazard to a combat mission is
flying against an enemy with an SA-14 surface-to-air missile; and when a dam
begins to crumble, that’s obviously a hazard for the emergency manager, or for
anyone in the vicinity for that matter!
What is the likelihood a hazard will cause damage? That tells you the
risk.
In risk analysis, we
measure the likelihood of a hazard impacting your endeavor and the consequences
it causes. There are complex risk
analysis tools available and risk analysis consultants to evaluate your risks but
I will present a simple method to capture your risks and rank them.
The Risk Analysis Process
During Risk Analysis,
identify the hazards that directly impact your business, endeavor or operations’
processes. Obviously, there are many
hazards in the world but we’re examining only those that directly affect you For
example, a storm could affect the delivery of your products. The hazard to you
is not the storm but the failure of your logistics operation to deliver products
as scheduled.
- Brainstorm hazards: Which hazards affect your business?
- Determine the likelihood a hazard will affect you and assign a numerical value to the hazard: 1- low probability of a hazard will occur 5- a high likelihood that a hazard will occur.
- What is the consequence of a hazard’s impact on your business? Rank according to the problems associated with a hazard: 1- low to no effect on the business to 5- business operations may fail.
- Multiply likelihood by consequence to come up with a numeric representation of the risk to your business.
- Rank the hazards based on the risk value; highest risk rank highest.
- Consider methods to avoid, mitigate or prepare for the risk.
From
the above example, you can see that losing your top sales person has a highest
risk. The good news is that this risk can
be mitigated, perhaps by paying the salesperson more or assigning a backup
salesperson early on.
Preparedness
is always your fallback position. First, avoid risk if you can still accomplish
your goals while doing so. Second, mitigate
risk if the costs are affordable. Finally,
be prepared to respond if the risk affects your operation.
What
do you think? Will disaster strike? Lightning doesn’t strike twice?
Be
prepared!
Michael
James Smyth
