Years ago, when I told people that I worked at an early-stage venture capital firm, a common reply was, “I’ve wanted to start a business, I love taking risks!” But I never once heard committed entrepreneurs describe themselves as risk-takers. Where others see risk, entrepreneurs see opportunity. They do not take risk; they bear risk by tolerating and managing risks within their personal risk threshold.
Mitigating risks is key to your organizational or project success. A risk is the product of the probability of something negative (or positive) happening and the consequence of that event. I.e., Risk = [Likelihood] x [Consequence]. That gives two levers to reduce negative risk by changing the odds or by managing the consequence. For the typical nonprofit enterprise, the process of creating a risk management plan can be a matter of only several hours of team time and can be captured in a simple template. It is wise to add a constructive and critical external advisor to the process who might see past internal blinders and mindsets. Whatever the process, it should look like other processes that fit your organizational culture. The first questions on the table for a risk management plan are:
What events could prevent achieving our objectives?
What are the odds of their occurrence?
What would be the consequence or impact of their occurrence?
The likelihoods and the consequences can be scored on a Low-Medium-High scale, provided you reach agreement on the definition of those categories. Trust your intuition. A Low-Low rating might be an unlikely and manageable hurdle. A High-High score would be a very certain existential threat that might call for recrafting the whole endeavor. Whether your level of analysis is a project or the organization, the team and leadership will need to assess its level of risk tolerance (or risk appetite in the case of rewards/gains). Even when risks seem moderate, the sum of all those risks may exceed the team or organization’s risk threshold and demand a re-think. The next questions to develop a risk management plan are:
How will we know the risk is there?
When is the risk likely to occur?
Who among us is responsible to sense the risk and then to manage the risk? Caution: That may not be the same person!
How will we adapt to mitigate the consequence or eliminate the occurrence?
These questions will tune your ‘risk radar’ to know when you enter the risk scenario; early detection can win half the battle. Most projects are designed and managed to a logical, though optimistic scenario. (Don’t ignore the positive risks – or gains; your team should be as tuned to emergent opportunity as emergent challenges!) With a good strategy and plan, success may be a result of “not failing” – like the amateur game of tennis where the winner is the one who makes fewer blunders. Creating the team culture to commit to regularly assessing and updating the risk management plan is vital. If Culture eats Strategy for lunch, it probably snacks on risk management plans.
Don’t take risk as either a passive victim or a thrill-seeker. Own risk, dance with risk, and face risk. Proactively seek to bear risk as a team by (1) identifying likelihoods and consequences, (2) agreeing upon your risk tolerance and risk threshold, (3) sketching out adaptive responses, (4) assigning ownership to detect and mitigate risk, and (5) building risk management into team culture.
Photo by Mathew Schwartz on Unsplash
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