JOINT BASE CHARLESTON, S.C. –
Every day people are faced with the complexities of risk and, surprisingly, they are subconscious masters of Risk Management. After all, just deciding to get out of bed is a demonstration of risk avoidance. Since getting out of bed affords one the likelihood of avoiding getting fired at work or, even more underlying, is the risk avoidance of wetting the bed. So in layman's terms, risk is the possibility or likelihood of a bad event occurring. Well, so what? The definition makes sense but how can we use this to our advantage?
In the rigmarole of a weekly work routine (insert- battle rhythm, plan of the week, etc.) there are numerous risks that are measured, weighed, mitigated and accepted. Within the military, various charts have been developed to provide a hierarchy of results based on the probability of an undesirable event- or specifically measuring risk. These charts may list the probabilities (ex: always, sometimes, never) on one axis and the level of damage (ex: none, minor, major) on the perpendicular axis to cross reference for a pictorial understanding of the risks involved. What the military succeeds in is quantifying the various types of risk to determine their preferences, using a basic formula such as this:
Risk = Probability of a negative event X consequence in lost money/death
Understanding what level of risk is acceptable plays a huge role in risk management. So, if the probability of death or huge monetary losses are infinitesimally small, then the benefit of the event may be worth the effort.
As the saying goes, "it takes a 100 attaboys to make up for one aw crap." It is human nature to remember losses more than benefits or gains and we are easy targets especially after disasters, for suppliers (think insurance sales) of risk protection products or systems. Rather than waiting for history to repeat itself, the first response may be to over-react and throw money at a product or system to avoid repeating the undesirable event. Yet, without proper analysis, knee-jerk reactions can be more costly than time-consuming research, especially when costs are not monitored or if the event was extremely unlikely to ever happen again.
It is not surprising that the decisions on the amount or type of risk to take are critical to the success of a mission. An organization that decides to protect itself against all risk is unlikely to have sufficient resources remaining to accomplish their basic operations. In short, the essence of good management is making the right choices when it comes to dealing with different risks. Any risk manager who focuses on minimizing risk exposure will also reduce the potential for opportunity.
However, there is a link between risk and reward that has motivated individuals throughout history. Within the military, we have remained successful in national defense by identifying particular risks and seizing the opportunity quicker than our enemies. That said, there is a definite link between risk and innovation, in which new products and services have been developed to protect against and exploit risks. It is with a firm understanding of "acceptable risk" that tough decisions are made. In lieu of an unlimited budget and time, we must constantly assess risks and look for opportunities to generate the next increment of benefits and, possibly more importantly, know what that next increment of benefit looks like.