Some of the invariable truths we have collectively learned in a society are as follows:
- Rules are only there to draw guidelines and set expectations.
- Punishment doesn’t stop problems from happening, but conversations can.
- Prevention techniques are the best techniques for avoiding a problem all together.
These three elements are true in most aspects of life: investments (rule following), crime (punishment), and creating a safe community (prevention).
Knowing these elements of the human condition and how they function within a society means something very simple for businesses; risk management is a changing game. Most business risk management problems can be broken up into three different categories, and understanding each category will help any business maintain a forward motion.
The first, as always, is prevention. Prevention, and discussing the repercussions of actions is always the best way to ensure that employees are informed and vigilant. Through creating solid monitoring for operations, checking products for defects, and creating the kind of atmosphere that sets good behavior and decision making norms, many internal risks are simply prevented. The most preventable risks are internal risks, such as management or employees being inappropriate or unethical, by creating a moral mission and setting expected boundaries, many internal risks are avoided.
The second category is a strategy risk. A strategy risk is when someone takes a risk because they expect to have a beneficial outcome. For example, drilling offshore seems potentially dangers, but the gain of resources may be worth the risk and the initial set up costs. However, all strategy risks do resort back to plan one; they begin with prevention. All strategic risks run simulations and possible pros and cons to make sure that the benefits actually do outweigh any issues. Sometimes, it requires stepping back in order to leap forward. As long as a risk management system is set up properly and operations are being monitored, these risks usually do create a positive yield.
Lastly, is external risks. External risks can often be hard to prevent because they are unexpected, considering they come from something outside your control. Although business can certainly brainstorm possibilities of external risks, they are hard to plan for because people are innately designed to have cognitive bias that prevent them from seeing possible risks. The best way to combat this is to have a team dedicated to understanding risks that happen within your field of business, and helping to predict any possible issues. Alternatively, a hindsight group that can correct and solve external issues is also beneficial to manage the level that this risk impacts your business.
People avoid talking about risks because it inherently suggests that failure may come, and we tend to avoid the idea that we will fail. However, talking about the possibilities, or the outcome of risk, will empower a company with solutions to solve problems that may occur.
Problems are inevitable, but solutions are always available if time is taken to find them.