Wait a Second – You Mean We Can Have Positive Risks Too?

I know, seems counter-intuitive, right?

When we hear the word “risk,” we automatically think it has to be negative.

In many cases, it is. Perhaps a certain process is outdated and causing the company to lose money, or a defective product is leading to some bad press.

However, some risks can be considered “positive,” at least on the surface. The reason they’re still called risk is that, while you have a positive outcome in a certain situation, you may be creating other risks that will require attention. AND…the positive outcome is not a guarantee because you are taking a chance (or risk) to achieve the positive while there is the possibility of a negative outcome.

Another way to think about is – it is possible to have too much of a good thing. Positive risks “…are deemed as undesirable despite being positive at face value” according to John Spacey.

You may be really confused by now, but stick with me…

Let’s say you have a long-term project comes in under budget, which is great! Of course, this saves the company money, but now  a potential flaw in the planning and budgeting process at the company has been exposed.

Another example of a positive risk is for a product rollout to go better than expected. Let’s say you estimate your first month sales will be around 1,500 units, but the goal is reached by day 10 and the month ends with 5,000 units sold. On one hand, the increased sales are great news, but it can also expose the company to other risks, such as:

  • Your manufacturer cannot keep up with the demand, resulting in back orders and customer frustration.
  • You drain resources from other products or services.
  • You increase the cost of doing business, thus reducing or eliminating profitability.
  • Your website has so many visitors that it crashes the server.

As shown in these examples, you typically want to avoid situations arising out of positive risks. However, these risks can be managed in a way that turns them into opportunities should they occur (i.e. minimize the negative while maximizing the positive).

Using the product rollout example above, you may be able to offset the negative risks by taking these actions:

  • Work with your supplier to hire more workers to increase manufacturing capacity.
  • Include incentive language in the contract with the manufacturer for them to meet sales demands.
  • Hire temporary workers to handle the unexpected demand for the new product. Don’t sacrifice other products or services for this new product.
  • After reaching the goal so quickly, evaluate the product pricing. Is the price too low?

Another example of a positive risk is a product that has a much longer lifespan than expected. This can be turned into an opportunity for additional revenue if the product can command a higher price.

These are just a few examples of what ERM practitioners call positive risks and ways you can turn them into opportunities.

Have you encountered situations that were initially positive but created other problems in your organization? Feel free to share in the comments below or join the conversation on LinkedIn!

Featured image courtesy of Freedooom via FreeDigitalPhotos.net

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Meet Carol Williams, SDS Founder & Lead Strategist

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This blog was launched to provide strategy and risk practitioners with a go-to resource to better guide their efforts within their companies. Thank you for bringing me and my team along to be part of your journey towards better risk management, strategic planning and execution, and overall decision-making. Happy reading!

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