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Three Proven Methods of Risk Management

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The solutions we come up with to handle personal and professional problems have one common denominator: they are risky—the chief risk is that they may fail and leave us worse off than before. Therefore, we lean toward solutions that may not be the most effective or even the most in line with our goals, but are simply less risky.

The risk management methods discussed here set up a strategy or framework to identify and reduce risk before a solution is chosen, rather than scrambling to rescue a failed solution. The pre-mortem acts like a crystal ball for anticipating problems; Six Thinking Hats and 4-P framing open new perspectives for evaluating risk; and the standard inventive solution sets objective parameters for accepting the least risky solution, including the need for expert advice.

The Pre-Mortem: What’s the Worst That Can Happen?

One recently developed method of risk management is the pre-mortem, where you and your team or support system imagine that a solution has already failed and explain the reasons why. Outlandish reasons are valid. With everyone contributing at least one cause of failure, you quickly (a) identify previously unconsidered steps that could ensure success and (b) share information that might otherwise have never been offered. The pre-mortem also has the advantage of letting dissenting views be heard safely, since it is everyone’s job to consider failure.

As an example, take your own plans for buying a car. You and your spouse may suggest these risks: your current car fails before you the new one is purchased; the car is recalled after you purchase it, leaving you without transportation; the new car won’t handle a bike rack for your spouse’s bicycle which breaks down in a remote spot; you lose your job and can’t handle the payments; or your insurance goes up beyond what you can afford. During the pre-mortem your spouse reveals that the bike rack isn’t necessary but extra space and insurance might be important because—surprise—your adult child is moving back home and doesn’t have a car.

The pre-mortem often exposes risks like the following:

  • A solution is overly dependent on one person (or one client).
  • Success results in a solution that is too expensive in the short or long term.
  • A solution becomes outlawed by new regulations and has to be abandoned.
  • So much time is needed to implement the solution that interested parties lose interest.
  • The technology you’re depending on doesn’t work.

However, the pre-mortem should not start with prepared questions, because you are looking for new perspectives, not the same questions you’ve asked and answered before. Users of the pre-mortem suggest the following steps:

  1. Decide on a time (six months after implementation; a year after purchase) when the solution you tried has completely failed.
  2. Ask every team member to come up with a certain number of reasons for the failure.
  3. Ask each person to read one reason from their list.
  4. Gather all the reasons and prioritize them based on the level of concern.
  5. Figure out ways to prevent or lessen the danger of each failure.

Some authorities suggest skipping #4 and instead spending time on discussing the reasons generated by #3, so that everyone has a chance to consider each worst-case scenario and offer any information they have toward mitigating it.

TIP: For the pre-mortem to work, suspend judgment on the likelihood of each problem arising; you are seeking the unexpected scenario, not the one you already planned for.


Change Perspective: What Do You Think about This?

In the Six Thinking Hats method of risk management, everyone involved in the problem-solving process is asked to deliberately change their way of thinking about the problem for a set period of time (colored hats are used to designate the different ways of thinking).

Most work on risk management begins with the blue hat, to decide how the meeting will be managed; moves on to feelings about the problem and then to facts and information; then to positive thinking and new ideas to generate solutions; and ends with critical judgment. The process should be quick and repeated as many times as needed. The advantage here is that no one becomes labeled or stuck in a role as “the emotional one” or “the judgmental one,” but everyone has to approach the problem and its solution with the same attitude at the same time.

Another way to change perspective is by using a reframing matrix. A problem is selected and the viewpoints of different people (leadership, team, customers, distributors) are considered one at a time: how would each group of people react to each solution? You may have to make assumptions about how different people will react, so emotional intelligence is important to prevent biased assumptions, especially if those biases helped create the problem in the first place.

A 4-P reframing matrix considers risks involved in four different elements of the solution: program (what needs to happen), planning (how to implement), the potential of the solution, and people involved. Again, the group is asked to concentrate on one part of the matrix at a time so that everyone has a chance to contribute their ideas about risks inherent in that particular element of solution.

TIP: Changing your own way of thinking or fathoming another person’s perspective is uncomfortable, but it will reveal flaws in your assumptions.


Standard Inventive Solution: What’s the Least We Can Do?

The standard inventive solution is normally applied to technology and engineering problems, but lately has been suggested for organizational risk management; it would also work for personal risk management. The inventive solution depends on an orderly examination of the problem from the following viewpoint:

  • If something is harmful, we should eliminate it
  • If something isn’t available that we need, we should get it (or make it).
  • If something can be made better, we should.
  • If something is too complex, we should simplify it.
  • If we don’t have a way to measure, we should find one.
  • If we don’t know something, we should get help.

The method of risk management favors solutions that have the fewest harmful effects, require the fewest possible changes, and use standard, proven solutions as much as possible. It reduces any risk from danger, scarcity, ineffectiveness, over-complexity, and ignorance, and can be instituted with speed during crisis management. However, it may also end up limiting creativity and innovation, which are much riskier but also more likely to bring long-term benefits.

TIP: The standard inventive solution assumes that, as a solution approaches the ideal, it becomes simpler, more reliable, and more cost-effective.

Key Takeaways

By adopting a method to identify possible risks early on, you have a greater chance of finding a solution that minimizes risk and increases the chances for long-term success.

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