Innovation, Uncertainty and Risk Management
Life and business are full of uncertainties, giving rise to unexpected events that result in opportunities and threats and, therefore, a need for risk management.
You must manage risk and uncertainty to develop innovation as a core competency so that you can effectively capture opportunity and mitigate threats.
Risk management involves reducing uncertainty in a controlled and systematic manner in line with your increasing resource commitments so that you don’t take unacceptable risks that may jeopardise your innovation efforts and possibly your entire business and personal wealth.
Risk Management and Uncertainty
A risk is a future event or change in circumstances that, if it occurs, will have either a
positive or negative impact on whether you attain your objectives.
While uncertainty gives rise to risk, it’s not the same thing. Only uncertainties that impact
your objectives are risks.
A common difficulty in risk identification is confusing risk with its causes, effects, or
issues rather than risks that really matter.
- A cause is something true today (an existing condition or fact)
- A risk is an uncertainty that might or might not happen
- An effect is why it matters to our objective
For effective risk management, it’s essential to understand all three components so you can treat the risk rather than focusing on conditions you can’t change or impacts after the event.
Sources of Business Risk
- Suppliers (employees, contractors, finance providers, landlords)
- Resources (investments, equipment, land and buildings)
- Operational and management activity
- External factors (industry trends, competitors, market and macro environment)
By understanding the risk’s source, you can clearly articulate it, prioritise it and identify suitable treatments.
Risk and Impact
Risk can come from internal and external factors. The size of the impact depends on how uncertain it is and the level of impact it would have on your objectives.
- Maximise opportunity
- Prevent or reduce losses
- Limit the impact of losses that occur
Risk management should maximise opportunity while minimising threats, not focus on only one.
Risk Management
Risk management lets individuals and businesses make appropriate decisions that create and protect value.
- Knowing your objectives and context
- Identifying uncertainties
- Prioritising uncertainties
- Treating the risks that matter
- Monitoring and adapting
- What are we trying to achieve?
- What could affect us?
- What should we do about it?
- Did it work?
- What did we learn?
Opportunities and Threats – Dealing with Risk and Uncertainty in Business
A little analysis and proactive planning can maximise benefits and mitigate threats associated with uncertainty.
Managing upside and downside risks requires the same systematic approach.
If you’d like to learn more, call Fortitude Business Consulting
on 1300 551 040.