Risk Management & Today’s Newer/Quicker World

I asked Leslie White, Croydon Consulting, to share her thoughts on an issue that continues to provide an undercurrent: risk.

Since attending ASAE’s Annual Meeting in Toronto I have been pondering the question of how risk management fits into the newer, quicker world of today. Too often the practice of risk management is viewed as an obstacle to innovation. A risk manager (you know the person who raises the “risk” question) is viewed as the “No” person. “We’ll get sued” is the most common refrain. I am trying to figure out how to change that paradigm so risk management becomes an important change agent.

It seems as though the paradigm is beginning to shift based on the messages I took away from the Annual Meeting. According to Charlene Li, co-author of Groundswell and founder of Altimeter Group:

  • Fail fast, fail often
  • Try many things
  • Start small

And a recurring theme: be innovative, try counter-intuitive ideas and most of all don’t be afraid to fail.

So many of us fear failure … the loss of our jobs, promotions and reputations if we are perceived as failing. No one likes to fail but it is a great teacher and often you can make lemonade (think Post-It Notes) from a mistake. So how do we get over our fear of failure?

My “What would you attempt to do if you knew you could not fail?” paperweight reminds me to try new things (I need all the help I can get – I don’t like change!). It might take more than a paperweight. Perhaps we can de-sensitize ourselves from the fear of failure. We are de-sensitizing our dog to thunderstorms (after she ran away for 36 hours) by providing a calming fragrance (D.A.P.® Dog Appeasing Pheromone) and not feeding into her anxiety. It seems to be working so eventually she will view a thunderstorm as no big deal.

We can provide a calming atmosphere for humans? Not make a big deal out of someone’s mistake or failure? Let’s change the organizational culture so failure is an option and a natural part of both corporate and personal life. Appreciating and celebrating failure is counter-intuitive (see you are already making progress) but if people feel safe they may be willing to try new things – whether successful or not.

So what does this have to do with risk management? People’s perception of risk – read “failure” – affects decisions they make. Risk is inherent in all decision making since we have uncertain outcomes: the result can be good, bad, or no change. Since we’re not good information processors, humans make decisions that produce unexpected results. Aversion to failure is just one issue as Michael Leitch points out in Making Sense of Risk Appetite,Tolerance and Acceptance (Revised).

People often base decisions upon their personal interests instead of what’s best for the organization. But Michael notes many of the reasons are tied to inability to understand risk and risk management. People too frequently:

  • Over or underestimate the rewards;
  • Have poor ideas on how to control the risks; and
  • Make faulty comparisons.

So how can we help people make better decisions for their organizations to maximize success and minimize the effects of failure – while turning every failure into a learning moment? The quick answer is to assess the risks in the decision making process. But what is risk assessment?

  • Identifying and analyzing the risks of each option.
  • Considering if the risk can be mitigated in a cost-effective manner.
  • Examining what risk control measures would make the option acceptable and perhaps the preferred solution.
  • Challenging your assumptions to avoid over or underestimating the risks and rewards.

Many good ideas may be rejected out of hand as too risky when they are actually the best option which you don’t know until you do the risk assessment.

These are just my first thoughts on how to include risk management strategies in your decision-making process. Let me know what you think and what role risk perceptions or assessments play in your decision making.

Editor’s Note: Leslie White, CPCU, CIC, ARM, CRM, is president of Croydon Consulting, LLC, a risk management consulting firm specializing in associations and nonprofits. Leslie can be reached at LWhite at croydonconsult.com or via Twitter @ltwhite.