Easy Tips To Identify And Evaluate Risk
Any action that you take involves some degree of risk. Of course, some things are riskier than others. Taking a walk down to the convenience store to buy a frozen burrito is relatively risk free. Going scuba diving with a spear hoping to catch your dinner might be a little more dangerous. Luckily, humans developed fear in order to protect us from most of the risks we were exposed to back in our caveman days. Risk assessment was quick, automatic, and largely unconscious.
In today's world, risks are much different. Sure, there's still the risk of falling off a cliff, but some risks are hard to pin down. That's why you need a fairly structured approach to minimize risk as much as possible, especially in a business situation, where there's plenty of money at stake. In order to effectively do this, there are three basic steps.
The first step is to identify risk. This means acknowledging something bad might happen if you take some course of action. No matter what you are thinking of doing, just imagine what things can go wrong. Anything possible that you can think of that can happen, goes in this first step. Once you've got all your lists written down on sheet of paper, it's time to move on to the next step.
Next is risk assessment. This is where you analyze each individual risk. With each potential risk, take three different views. Best case scenario, average case scenario, and worst case scenario. Then with each particular scenario, estimate the probability of each event happening. Now you've got your risks identified and evaluated, you're ready to move on to the next step.
Now you've got your second list all ready, it's time to prioritize your risks. The risk that have a high probability combined with a horrible outcome would go to the top of your list. The risks that have a low probability of occurring combined with a fairly negligible negative outcome would go to the bottom of your list. Once you've got them all prioritized, you can start taking steps to prevent them from happening, or to protect yourself in case they do happen.
Of course, this is the first step in risk assessment. In further articles I'll discuss different ways to mitigate risks so you can do whatever is in your power to protect yourself. Once you've both identified and categorized your risks, you can begin taking these steps to get rid of them, one by one. Any business, whether it's personal or a fortune five hundred company, that does this consistently has a much higher probability of success.
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