Projects are full of risks. Every day project managers must make decisions where the outcome matters but where the conditions surrounding the decision are more or less uncertain. Faced with these circumstances, most project managers have developed habits and strategies that enable their lives to "deal with risk" for much of the time. It is only in the presence of an unusual risk that people may be conscious of the need to make a choice.

The management of these uncertain situations that matter, also known as risk management, is a discipline in its own right. It has an established role in business, and is applied at a wide range of levels, including management of strategic risk, corporate governance, operational risk, project risk and health, safety and the environment. However, risk management is not just important for projects and business. There is an increasing interest in the application of effective risk management  in society at large, and there is a urgent need for people to embrace “appropriate risk taking”, both individually and in their working and social groups, supported by government and wider society.

By defining risk simply as “uncertainty that matters”, it is clear that knowing how to take appropriate risks in any particular situation requires an understanding of two things: the sources and nature of uncertainty, and the degree to which something matters. It is also clear that different things matter to different people to a different extent in different circumstances. As a result, a risk perceived by one person or group as requiring urgent attention may be perceived by others as normal and not worthy of their time.

The perception of risk is not absolute, either present or absent, but is situational and highly dependent on a number of contextual factors. It is this situational aspect of risk that makes the subject of decision making in uncertain situations both fascinating and important.

Taking appropriate risks requires an underlying understanding of the nature of the challenge. On one hand, managing risk can be seen as a rational and logical process requiring a grasp of factual historical evidence combined with mathematical assessments of the likelihood of the uncertain event occurring. It is however equally true that managing risk involves the deepest workings of the human brain, as the decisions people make are influenced by a complex interplay of conscious and subconscious factors. This is why one essential component of appropriate risk taking is an understanding of risk attitude as it applies to individuals and to decision-making groups.

Talking about risk will lead many people to think only about threats, that is, those uncertainties that should they occur would result in an undesirable outcome. However, contemporary management thinking and practice treats risk in a more balanced way. An uncertain set of circumstances could equally lead to positive outcomes, allowing the definition of risk to encompass both opportunities and threats. This double-sided concept of risk is particularly important in the context of effective decision-making, because most decisions need to balance the exploitation or enhancement of hoped-for positive outcomes with the avoidance or mitigation of unwelcome negative ones.

Deciding whether to seize a business opportunity to launch a new product on to the market before the competition needs to be balanced against the threats to the company’s reputation if the new product is not trouble-free. Although each decision is unique, there are no risk-free options. Moreover, zero risk is not only unachievable, it is also undesirable. Failing to take risk would stifle growth and limit improvement. Appropriate ris-taking promotes competitive advantage and stimulates innovation and creativity. Decision-making in a world that is full of “uncertainty that matters” needs to find an optimal balance of threats and opportunities.  

 

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Know not only what your risks are but what they're worth to you, by analyzing the Expected Monetary Value of Risks. If that's too quantitative for your situation, our Risk Assessment and Mitigation Tables may have better ideas. Once you know what you're up against, make sure you select risk strategies appropriately.