Rethinking Risk

Risk is a fact of life, particularly so for businesses, which must deal with a wide variety of risk.

Risk is a fact of life, particularly so for businesses, which must deal with a wide variety of risk. Some of it is good: a new product, an innovative service, a new employee or a possible acquisition. But some of it is also negative—a new and powerful competitor, a change in the regulatory or financial rules, the loss of a key employee or a natural disaster—such as a fire, flood, earthquake, hurricane, poor economy or lower consumer spending.

How we deal with risk is often the difference between success and failure. The noted radio and television sports commentator, Mike Francesa, once observed that the worst team in baseball will win one-third of its games in a given season. And the best team in baseball will lose one-third of its games. The key to success is how you handle the middle one-third of the games. How we handle the middle is usually the key to success and survival, and much of that concerns how we conceive of, pay attention to and deal with risk.

Much of successful risk management deals with four factors:

1. The assumptions we make: Most managers crave that piece of mind that things are going well, which can unfortunately lead to blind spots. How often do you test your protection systems? Are you certain that all the numbers you see are accurate?

2. The data we have available: Contrary to popular belief, most people are drowning in too much data, not picking apart too little. It takes too much time to make sense of it. Separate and prioritize the information. What is most likely to have a big impact on your business in the next year? Run a few test scenarios to figure out what to look for.

3. How we organize that data: Data collected hapharzardly cannot be grouped and analyzed properly. Think about how each part of the organization links together. Organize the data and look for the weak links.

4. The actions of the most productive and dangerous element—people: We often assume employees—especially long-time employees—are trustworthy, but things happen. Personal problems can spill into professional lives and employees may ignore health problems, leading to danger when using heavy equipment. Don’t neglect your employees and keep communication open.

We must be wary of making the all-too-common mistakes companies—great and small—make with alarming regularity, often with severe results. The worst consequence is not the immediate loss, as painful as it may be. The mortal blow is not learning from the failure to assess risk properly, since this almost always ensures the event will happen again. It may be a day, a week, a month, a year or even a decade, but it will happen again, because risk is always present.

We can play with computers and other tools of the moment, and some of them may have some value, but it is the manner in which we think about risk that is key. Without the proper mindset we, and our companies, live from day-to-day and hope for the best.  Some thought, analysis and preparation can go a long in reducing our risk profile and move us toward the one-third of the games in the middle that make the difference at the end of the season.

For More Information:
Dr. Joseph A. Koletar
Wilmington, NC
 (910) 612-1323
jwk357@aol.com

Contributor:
Joseph A. Koletar is an independent security and investigations professional in the Wilmington, North Carolina Area. He is also the author of Rethinking Risk: How Companies Sabotage Themselves and What They Must Do Differently (AMACOM 2010). He served as Executive Director, Principal, and Director in the Fraud and Investigations practices of Ernst & Young LLP and Deloitte & Touché LLP. In addition to his international work with many premier law firms, his 40-year FBI career culminated in his role as Section Chief in the Criminal Investigative Division.

 

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