Risk management basics: What exactly is it?

Summary

This script simplifies risk management into six intuitive questions that anyone can ask in any situation: What are we trying to achieve? What might affect us? Which are the most important risks? What should we do about them? Did our actions work? What has changed? By addressing these questions, risk management becomes a natural and straightforward process, applicable to both personal and organizational decisions, without the need for complex statistics or bureaucracy.

Takeaways

• 🎯 Risk management is a fundamental and natural process that involves asking and answering six basic questions.
• 📍 The first step in risk management is to define objectives, understand the scope, and set the context for managing risk.
• 🔎 Risk identification involves finding uncertainties that could affect the achievement of goals, both positively and negatively.
• 📊 Risk assessment is about prioritizing risks based on their likelihood of occurrence and potential impact on goals.
• 🛠 The fourth question focuses on developing responses to identified risks, which could include avoiding, minimizing, maximizing, or exploiting them.
• 🔄 Implementing the planned responses is crucial, followed by evaluating whether these actions were effective.
• 🔄 Continuous monitoring and evaluation are necessary to adjust approaches and identify new risks as projects and environments change.
• 🔄 The process of risk management is iterative and dynamic, requiring regular reassessment to adapt to new information and circumstances.
• 📝 While risk management can be applied with various levels of detail and tools, the core remains the same set of six intuitive questions.
• 🌐 These questions are universally applicable, regardless of the complexity or scale of the project, from personal decisions to large-scale endeavors.

Q & A

What is the speaker's perspective on risk management?

The speaker believes that risk management is a natural and important process that involves asking and answering six basic questions, rather than being a complex and difficult task involving probability and statistics.

What are the six basic questions of risk management according to the speaker?

The six basic questions are: 1) What are we trying to do? 2) What might affect me? 3) Which of those things that might affect me are most important? 4) What should we do about it? 5) Did it work? 6) What changed?

Why is the first question 'What are we trying to do?' important in risk management?

This question is crucial as it sets the objectives, understanding the scope, context, and environment within which risk management takes place, which is the first step in the risk process.

How does the second question 'What might affect me?' lead into risk identification?

This question prompts the identification of uncertainties and future events that could either hinder or help in achieving goals, which is the second step in the risk process.

What is the purpose of the third question 'Which of those things that might affect me are most important?'

This question helps in prioritizing the identified uncertainties by assessing their likelihood and potential impact on goals, both positive and negative.

What does the fourth question 'What should we do about it?' encourage?

It encourages proactive responses to identified risks, such as avoiding, minimizing, or protecting against bad risks, and maximizing or exploiting good risks.

Why is the fifth question 'Did it work?' significant in the risk management process?

This question is significant as it involves evaluating the effectiveness of the planned risk responses and adjusting the approach if necessary.

How does the sixth question 'What changed?' relate to the dynamic nature of projects?

This question acknowledges the constant changes in projects and business, emphasizing the need to identify new risks and adapt the risk management approach accordingly.

What does the speaker suggest about the complexity of risk management processes?

The speaker suggests that risk management does not need to involve bureaucracy, forms, or complex statistics, but can be a natural process of asking and answering important questions.

How can the six questions be applied to different scales of projects?

The speaker indicates that whether it's a complex project like putting a man on the moon or a simple task like moving across an office, the same six questions apply, and they can be applied at a more detailed level with additional tools and templates for larger projects.

Outlines

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🔍 Risk Management Simplified

The speaker challenges the common perception of risk management as a complex process involving probability and statistics. Instead, they argue that it is a natural and crucial activity that can be broken down into six fundamental questions. These questions are applicable across various contexts such as personal decisions, projects, processes, and organizational decisions. The first question, 'What are we trying to do?', leads to the initial step of risk management, which is objective setting. This involves understanding the scope, context, and environment for managing risk. The speaker emphasizes that risk management is not about being overwhelmed by uncertainty but rather about taking control and making informed decisions.

Keywords

💡Risk Management

Risk management is the process of identifying, assessing, and prioritizing risks to an organization's capital and earnings. It involves coordinating and integrating all of the organization's efforts to minimize, monitor, and control the probability and impact of unfortunate events or to maximize the realization of opportunities. In the video, the speaker simplifies this complex process by breaking it down into six basic questions that anyone can ask in any situation to manage risk effectively.

💡Objective Setting

Objective setting is the first step in the risk management process where the goals and objectives of a project or endeavor are clearly defined. It provides a clear direction and purpose, which is essential for managing risk effectively. In the script, the speaker mentions that understanding the scope, context, and environment is crucial for setting objectives and managing risk.

💡Risk Identification

Risk identification is the process of recognizing and listing the potential risks that could impact the achievement of an objective. It involves looking at the future events that could either help or hinder the achievement of goals. The script emphasizes that once the objectives are set, the next step is to identify what might affect the achievement of those objectives.

💡Risk Assessment

Risk assessment is the evaluation of potential risks to determine their significance and likelihood of occurring. It involves prioritizing risks based on their potential impact and the probability of their occurrence. The speaker in the video refers to this step as determining which identified risks are most important, considering both threats and opportunities.

💡Risk Evaluation

Risk evaluation is closely related to risk assessment and involves analyzing the potential effects of identified risks on the project's objectives. It helps in understanding the severity of risks and their potential consequences. The video script uses this term interchangeably with risk assessment, highlighting the importance of evaluating how likely an event is to happen and its potential impact.

💡Risk Analysis

Risk analysis is the systematic use of information to identify the risks to an organization's capital and earnings, and to determine how those risks may affect the achievement of its objectives. It is part of the broader risk management process and is mentioned in the script as a step to prioritize uncertainties that matter.

💡Threats and Opportunities

In the context of risk management, threats are potential events that could negatively impact the achievement of objectives, while opportunities are potential events that could positively impact them. The script emphasizes that risk includes both threats and opportunities, and managing risk involves evaluating and responding to both.

💡Response Planning

Response planning in risk management involves designing strategies to deal with identified risks. This could include actions to avoid, minimize, or protect against negative risks (threats), or to maximize, exploit, or position for positive risks (opportunities). The speaker in the video suggests that once the key risks are identified, the next step is to plan responses to them.

💡Monitoring and Control

Monitoring and control is the ongoing process of tracking identified risks against action plans and making adjustments as necessary. It ensures that risk management strategies are effective and that new risks are identified and managed. The script mentions the importance of checking if the planned actions are working and adjusting the approach if needed.

💡Change Management

Change management is the process of ensuring that changes to an organization and its processes are managed in a controlled and structured way. In the context of the video, the speaker highlights the dynamic nature of projects and businesses, emphasizing the need for change management to spot new risks that have arisen since the last review or action.

💡Intuitive Process

An intuitive process is one that is natural and easy to understand, often relying on common sense or inherent knowledge. The speaker argues that risk management, when broken down into the six basic questions, becomes an intuitive process that doesn't require complex bureaucracy or extensive statistical analysis. This approach makes risk management accessible and straightforward for anyone.

Highlights

Risk management is a natural and important process, not just about probability and statistics.

It involves asking and answering six basic questions relevant to any situation.

The first question is about setting objectives and understanding the context for risk management.

The second question focuses on identifying potential risks that could affect goals.

Risk assessment involves evaluating the importance of identified risks.

Prioritization of risks is based on their likelihood and potential impact.

The fourth question is about designing responses to identified risks.

Responses to risks can involve avoiding, minimizing, or protecting against negative impacts.

For positive risks, responses might aim to maximize or exploit opportunities.

The fifth question is about implementing the planned risk responses and evaluating their effectiveness.

The sixth and final question is about monitoring for changes that could introduce new risks.

These six questions make risk management intuitive and applicable to any scale of project.

Risk management does not have to be overly bureaucratic or rely heavily on statistics.

For larger projects, more detailed application of these questions with tools and templates may be necessary.

The same six questions apply regardless of the complexity of the project.

Risk management can be simplified by focusing on these six key questions.

Transcripts

people say to me what's risk management

really all about surely it's a lot to do

with probability and statistics and a

complex process that's very difficult to

apply and I disagree I think managing

risk is one of the most natural things

we can do and one of the most important

and for me risk management is

essentially asking and answering six

basic questions and they're questions

that everybody wants to ask no matter

what situation they're in whether it's a

personal dma a project process or some

kind of organizational decision the

first question is what are we trying to

do and that really leads us into the

first step of a risk process which is

objective setting understanding the

scope and the context and the the

environment within which we're having to

manage risk so what am I trying to

achieve is the first question and it's

the first step of the risk process once

we know what we're trying to achieve the

second question is what might have

affect me are there things out there in

the future which could either hinder me

achieving my goals or maybe even help me

and that question what might affect me

is our step into risk identification

finding the uncertainties that matter

the future events which if they occurred

would help or hinder as we try to

achieve our goals the third question is

that not all of those things we've

identified are equally important so my

third question is which of those things

that might affect me are most important

and that leads us to the step of the

risk process that we call risk

assessment risk evaluation or risk

analysis trying to prioritize those

things that might affect us in two key

Dimensions How likely is it to happen

and if it did happen what could it what

effect could it have on our goals either

positive or negative because of course

threats in uh risk includes both threats

and

opportunities so our first three

questions are what am I trying to

achieve what might affect me and which

are the most important ones that gives

me a prioritized list of uncertainties

that matter now the fourth question what

should we do about it and this is really

important because otherwise we're just

the victims of uncertainty and things

might happen on our projects which we

weren't expecting so now we know what

the key risks are we can design some

responses we could try on bad risks to

avoid them or minimize them or protect

ourselves for good risks we could try to

maximize or exploit them or to make

ourselves more able position ourselves

to be better able to exploit them to use

them if they happen so our fourth

question what am I trying to achieve

what might affect me which are the

important ones and what shall I do then

of course we have to do what we said

we'd do and our fifth question is did it

work often we find that the actions that

we plan to take into in response to risk

are not actually achieving what we did

want and so we might need to modify our

approach and the last question which is

really important question six what

changed projects life business is

constantly changing very Dynamic and we

need to make sure that we spot the new

risks that have Arisen since the last

time we looked since the last time that

we took

action now I think those six questions

are easy they're intuitive they're the

sorts of questions that anybody would

ask in any important situation what am I

trying to achieve what might affect me

which are the important ones what can I

do about it once I've done that did it

work and what's changed and if we build

our risk process around those six simple

questions then it becomes easy to do it

becomes intuitive it becomes a natural

process that doesn't involve lots of

bureaucracy lots of forms lots of

Statistics we're just asking and

answering important questions of course

on a bigger project we might want to

apply those six questions at a more

detailed level with templates and tools

and modeling and all sorts of other

approaches but as at its roote whether

we're trying to put a man on the moon or

we're trying to uh move from one side of

the office to the other a complex

project or a simple project the same six

questions apply so next time you're

tempted to think that risk management is

really difficult just remember the six

questions ask them answer them and

manage your risk