Let’s give a shout out for the maligned world of Risk Management

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January 11, 2021

Why does risk management have such a bad reputation?  Too often ‘Risk assessments’ are seen as an excuse not to do something.  And lengthy ‘risk review’ meetings, where 1000 line risk registers are debated line-by-line, leave attendees losing the will to live.  Risk is seen as discretionary.  “It may never happen so why worry?”.  Whenever there is economic uncertainty or market disruption – such as caused by the COVID-19 pandemic or the decline of the high street retail market – it is too easy to say “Why would I pay to install a burglar alarm when my house is currently on fire?” 

Lets look at elite sports 

I was listening to an excellent podcast this afternoon by Shirley Roberston when she was interviewing Grant Simmer (she has a great series that you can find at http://shirleyrobertson.com/podcast/).  Grant, for those who don’t know, is a demi-god in the sailing world.  He has been involved in four of the winning teams in the America’s Cup, including as navigator of Australia II in 1983 when the USA lost for the first time ever.  Grant is currently the CEO of the INEOS Team UK challenger in the 36th America’s Cup. 

Something struck me in that podcast.  He was talking about his current role and about the new boat Britannia that will be racing, and hopefully winning, in the competition this year.  Regardless of whether you are a supporter of the UK challengers or not, their boat is a fantastic and audacious design.  In his words it’s a “Really cool boat; radical; far more radical than feels comfortable to me, I’m too conservative”.  He then spoke about his role in the context of this and said: 

“We’re in this new class of boat and it’s essentially a new thing, so you got to take a lot of risk, and so managing risk is a big part of this.  So its exciting, yeah.” 

This is someone who is at the very pinnacle of his industry, and not only does he describe a key part of his job being risk management, but that its exciting.  You could look at all areas of elite sports - I believe those who are consistently successful are also those best at understanding and then managing their risks.  They might not always win, but they always stand a chance of winning. 

Risk and Reward are inextricably linked 

The fact is that Risk and Reward are inextricably linked.  In most situations you can take an easy path to avoid risk.  A comfortable, but unremarkable route.  If it is easy, it is also easily copied.  Margins are inevitably lower.  Competition will be tougher.  The threat from disruption will always be there. 

Alternatively you can take the path less trodden.  Or as Steve Jobs said, you can “put a dent in the universe”.  Nothing is guaranteed.  The chances of failure are inevitably higher.  To succeed you can either leave it to chance – the roll of the dice – or ruthlessly focus on identifying and mitigating the risk. 

As Richard Branson wrote in his autobiography, Losing My Virginity, “It is only by being bold that you get anywhere. If you are a risk-taker, then the art is to protect the downside.”  Similarly, Warren Buffett has been quoted as saying “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” 

None of these people have achieved their fantastic success without having a keen focus on risk and its management. 

Risk Management is the key enabler for successful Opportunity Realisation 

Opportunities are things you aren’t doing now but that if followed might lead to some sort of benefit.  It might be a job opportunity – but are you just going to blindly leave your current job without doing some due diligence into the new role to assess whether it is enduring and if you have the ability to excel?  It might be a new market opportunity – but are you going to invest in a new product or service on a whim without considering what might go wrong and how you can avoid that scenario? 

It might also be a supplier opportunity.  Is there a new supplier who has an innovative product that can give you a competitive edge in the market?  Or perhaps one who has found a way of doing something quite mundane; but better, faster and cheaper; giving you the ability to reduce your price point or increase your margin.  But can you rely on that Supplier to stand up to its commitments, not let you down, and care about your reputation? 

All of these opportunities carry risk.  It is up to you whether you want to avoid the risk (and therefore the opportunity), rely on luck and hope, or spend a bit of time and effort understanding the risk so that you can protect against it. 

So lets embrace risk as the route to success and excitement 

When we go on a roller coaster we get a buzz from the risk – but we still strap in.  In most adventurous sports, such as sailing, skiing, surfing, scuba diving, climbing or trekking in the wilderness, a significant part of the enjoyment comes from overcoming the risks.  In business, my greatest satisfaction has come from taking a risk, protecting the downside, and “doing the different” to achieve success.  And when it hasn’t gone entirely to plan I have learnt the most from the risks that have impacted.  As they say “What doesn’t kill us makes us stronger”. 

So lets give the concept of risk management a bit of a polish.  Letrecognise that big success doesn’t come from the easy option; and it doesn’t come from hoping that bad things won’t happen; it comes from being audacious but making sure that we are grown up about what could go wrong. 

Tom Burton - CTO

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