“You cannot fail to sleep because some people die in their sleep.” That is one of the opening lines I use when engaging with executives and board members about effective risk management. “Exercise. Eat well. Drink water. Do not be stressed about the things you cannot control and do regular health check-ups.” That is effective risk management. The rest leave to God.
Risk – the effect of uncertainty on objectives – is present in everyday activities.
Whether it is going to bed or for a run, or driving to work, or typing on your phone, you take some degree of risk. The “effect” refers to the impact the uncertainty. The impact could be positive or negative. For this reason, you must embrace risk and manage it adequately because it brings with it an upside or downside to your value creation agenda.
The “uncertainty” refers to the probability of an event’s occurrence.
Every objective (value creation agenda) you pursue is exposed to events that could happen. Events like an earthquake, a fire outbreak, a rogue road driver leading to road accidents or even a traffic jam, a night intruder – could happen to anyone. But the chances of their occurrence is different depending on the context or the existing circumstances.
The probability of a road accident is high if you drink and drive, use a car that has not been serviced on a long-distance, or text as you drive or drive while sleepy. Managing risk means you anticipate what could go wrong, the effect it will have on your objective if they go wrong and put in place mechanisms to prevent the event from occurring or reduce the impact of the event or both.
The ability to anticipate what could go wrong, and explore alternatives to address it, has made societies and individual’s progress. We use risk management to spur innovations. Risk management helps us to see the existing gaps and explore innovative ways to close the gaps, which leads to personal development and the advancement of society.
When a person sleeps on the staring wheel due to fatigue and affects other road users, it is a motivation for innovators to explore self-driving cars using advanced machine learning and auto sensors and other newer technologies that reduce the risk of head-on collision to almost zero. That is how risk management leads to progress.
What risks are you taking? How are you taking them? What innovations are you making due to the risk areas present?
Copyright Mustapha B Mugisa, Mr Strategy 2021. All rights reserved.