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Assessing RISK—Realistic Identification of Strategic Keys

Rotary knob with the word risk in red turned to mitigate with a glowing LED switched on

Almost everything we do has some amount of risk associated with it. There’s the classic “I could get hit by a car crossing the street” for instance. We drive cars at alarming speeds risking our lives. If we have a family, we may (I hope) have life insurance, having assessed the risk of dying and leaving the family with some financial means.

Risk shows up in many places in our lives. In addition to life insurance, we likely have homeowner’s insurance, auto insurance, and, maybe, a personal liability umbrella policy. The bank may require mortgage insurance. A financial planner will often ask you about your risk tolerance. Preservation of capital is for the risk averse. Investment in mutual funds is a ‘middle-of-the-road’ level of risk. Growth stocks are considered to be a more risky investment.

Businesses are assessed credit ratings from AAA to junk based on the risk associated with investing in that company. Angel investors are comfortable with more risk as they look to find the opportunity that will provide 10x to 30x return in 3-7 years. Successful business people are said to take calculated risks. Sometimes, in the purchase or merger of companies, risk is transferred from one part to the other.

For product safety and cyber security, various types of risk analysis are completed. A Failure Modes and Effects Analysis (FMEA) is a typical type of risk assessment that takes lessons learned from past failures and experiences. Another is called HARA for Hazard Analysis and Risk Assessment. In fact, most standards and recommended practices are the result of a previous problem and an attempt to avoid that happening again. Getting new vehicles approved through the National Highway Traffic Safety Administration (NHTSA) or new drug treatments through the Food and Drug Administration require extensive testing to assess the proper operation or effectiveness, as well as the risk of failure or side effects.

We cannot avoid risk, and we cannot let it paralyze us from action. We can take action to avoid some things from happening and, for others, to mitigate the negative impact. For some, all we can do is accept monetary compensation for the loss. For the future of your personal life, and, for the future of your business, take measured RISK—Make a Realistic Identification of Strategic Keys.