Everyone in an organization, and I mean everyone from the CEO all the way to a janitor or courier, has a perspective or opinion on a given matter.
It’s not that any one person is wrong; their opinion of a particular topic is just that – their opinion, based on a variety of factors like their background, experiences, position in the company, and so on. Therefore, a CEO or another executive is going to have a completely different interpretation or understanding of something than a manager of the IT Department.
For example, take a mountain…
If you’re standing at the bottom trying to determine how to get to the top, the mountain will most certainly appear daunting, so much that you may give up and go back to the lodge.
However, if you’re already about 80% up the mountain and only have a small distance to go to reach the summit, it will certainly appear to be an easier feat.
If you’re flying overhead in an airplane, you may think, ‘why are you making a mountain out of that mole hill?’
It’s all about perspective…
Risks are the same, in that what may appear to be significant to one person may not be a big deal to someone else.
Of course, the reverse is true as well.
What may appear to be a miniscule risk or issue to one person may be a monumental problem if it’s not addressed and not addressed fast.
The question then becomes – what do we do, or…how do we sort out those risks that really are not a big deal from those that are?
This is the one of the main reasons why we emphasize the importance of what many thought leaders refer to as “objective-centric” risk management practices.
A risk must be put into the perspective of: how does this risk affect the achievement of a given business or strategic objective?
In its own little silo, a risk may not be a big deal.
However, we all know that a company doesn’t operate in its own little silo – oh how nice that would be sometimes, right?
Instead, everything is connected or interrelated, so while it may be a minor problem when looked at in a vacuum, if the risk prevents the achievement of a mission-critical or strategic objective, it becomes a big deal.
Take a risk in the supply chain world…
It’s tempting to just conclude that a disruption in supplies for a base mineral or something similar is no big deal. However, if a company cannot procure this specific raw material, or procure it in a timely manner at a reasonable cost, then the objective of rolling out a new product (which relies on this raw material to make a critical component) may suddenly become unfeasible.
While the risk doesn’t bear a direct connection on the surface, it’s really a big deal because it will hinder or even totally prevent your company from reaching its goal.
Here’s an opposite scenario – one that I encountered with a client.
With risk criteria in hand, my client told me that if X were to happen, the business unit he led would not be able to achieve its revenue goals for the year, but after doing a little digging, we found that if that risk did materialize, it would only impact corporate-level revenues by less than 1%.
In the big picture of achieving goals and running the company, does a 1% loss in revenue warrant spending resources to avoid or otherwise respond to a risk, even knowing that there’s a chance that it may not even occur at all?
Sorting through all of this represents the essence of the risk manager’s job, or as Norman Marks explains here:
“There remains a role for the risk officer, but the primary role is to help management see the big pictures and make informed and intelligent decisions on the path to success.”
Norman’s article got me thinking hard about the relationship between decision-making and risk, which means I will be covering this topic more in my next article. I will dive into information needed for good decision-making, sources of that information, and how risk managers should be helping leaders truly have what they need for risk-informed and risk-aware decision-making.
What instances have you encountered where a risk perceived to be major turned out to be minor, or vice versa?
Join the conversation on LinkedIn to share your thoughts…
And if your company is struggling to make sense of risks, especially in the context of objectives, let’s set up a time to discuss your situation!
