What is risk management? For organizations, it’s the act of highlighting, reviewing, and controlling threats to a business’s revenue, brand, and well-being.
Common business risks include being vulnerable to lawsuits, IT and hacking threats, financial upheaval, losing customers, poorly executed strategic management, and more. Of course, existing in today’s modern business world, risks are everywhere.
There’s no such thing as avoiding risk entirely, but when armed with efficient risk management, your organization can gauge when to take risks safely.
We’ve labeled six common risk management errors to help you avoid them in the future.
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Avoiding Optimism Bias
Humans have an excellent track record for identifying patterns, making inferences, and drawing conclusions. This thought process, even if it occurs in the subconscious, is what has kept us alive as a species for so long.
However, humans are also biased. We’re incredibly prone to see things through our own restricted lens, with no commitment to alternate views. If you only see one angle of an issue, you’ll review the data with a commitment to confirming that angle.
That’s why so many arguments over politics or religion seem impossible. It’s because both parties are viewing the information through a biased lens, which can serve as horse blinders.
The same risk is present with optimism bias. Perhaps your sales department has been outperforming goals for the past five years. As the old saying goes, why would you fix something that isn’t broken?
However, it’s naive to assume that a machine will continue to perform forever. Just because a department or company sector hasn’t had issues before, doesn’t mean that will continue to be the case.
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Creating A Risk Management Strategy
For many companies, it’s tempting to pat themselves on the back far too soon. After going through the process of identifying risk, they throw in the towel.
After all, they won’t step into pitfalls they’re aware of. The organization can now make progress with eyes wide open. However, identifying risk isn’t the same as managing it. You need a plan to stay prepared.
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Ask for Outside Opinions
If you’re too close to the subject matter, it’s impossible to identify all of the flaws. You won’t be able to formulate a foolproof risk management strategy in this way.
Whether your solution includes implementing outside risk management software, or hiring outside consultants, getting help is crucial.
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Develop A Backup Plan
Once you develop a strategy, it’s tempting to move forward without ever looking back. But what happens when that plan doesn’t work? Do you have a plan to revise your strategy moving forward as factors change?
Having one plan is better than no plan at all. Having fallback options, though, will greatly increase your organization’s resiliency and peace of mind.
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Include Your Team
Risk management strategy meetings aren’t just for people on the top rungs of the company. You need to hear from people doing the work in the trenches.
What is their take on this new plan? How do they think it will impact customers? And what domino effect will this new plan have?
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Use Simple Language
Avoid the pitfall of making your risk management plan as vague and corporate-sounding as possible. Instead, embrace simple, verb-oriented language.
This approach will allow everyone to implement the plan and abide by the vision, from the CEO all the way down to the janitor.
Avoiding Risk Management Errors
Taking the time to avoid risk management errors involves foresight, planning, and patience. By avoiding the above pitfalls, your organization will be in a great position to make progress.
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