I like to think that effective risk management helps the managers of an organization, at all levels, make the informed and intelligent decisions necessary for success – reliably achieving enterprise objectives considering all the things that might happen, both positive and negative.
It’s not about managing the possibility of harmful events or situations.
It’s about managing the likelihood and extent of success.
The likelihood and effect of harmful events and situations, including the consequences of decisions, have to be weighed against the positive outcomes that may arise, and the right risks taken for success.
Let’s consider the things that might flow from a decision.
Imagine we are thinking of raising the sales price of our flagship product. A number of things might happen:
- Revenue is likely to increase in the short term, especially until customers are willing to change suppliers because our competitors have not increased their price.
- The additional revenue could fund further investment in our product line, with positive longer-term revenue increases.
- But, customers might also be unwilling to pay the higher price, impacting revenue. The change might be immediate but it could also be longer-term.
- There might be an impact on our reputation, with both short and, especially, longer-term consequences….
