Risks in Recession or Recovery: React or Respond?
Dr David Hillson FIRM, HonFAPM, PMI Fellow
Depending on where you live, you may be facing recession, post-recession austerity measures or recovery. One thing is certain - uncertainty! Times have changed, and the world is faced with a range of emerging risks which most of us have not seen before. [We discussed this in Risk Doctor Briefing 68 "What causes emerging risks?"] As a result, we cannot continue with business-as-usual strategies. In these turbulent times, we need different objectives. Many organisations are now seeking to:
- Survive and thrive. The first goal is still to be here when stability returns, but not to be so weakened that we are unable to move forward. This means taking the tough decisions to ensure survival without losing core capabilities or competences.
- Position for recovery. The global recession has affected everyone including our competitors. The successful businesses will be the ones best positioned to take advantage of the recovery when it comes. Use quiet times to build efficiency and prepare for growth.
- Enhance competitiveness. It is more important than ever to focus on the discriminators that set us apart from the crowd. We need to know what makes us special, so that we can tell potential customers, suppliers and stakeholders.
The ISO31000:2009 standard defines risk as "effect of uncertainty on objectives." The combination of different sources of uncertainty and different objectives inevitably produces a new set of risks for businesses, projects and people. The old risk paradigm has changed and we need to act differently. "More of the same" will not work.
Managers and leaders at all levels must ask "What should we do about the current risk challenge?" Our answers will determine whether we are still around when things change. But we should make a proactive considered choice rather than simply to be driven by events. It is better to respond than to react. We need to consciously adopt an appropriate attitude in response to the new risk situation we face. But what is "appropriate"?
There are four basic risk attitudes that we might choose between:
- Being risk-averse leads to a focus on protection and survival.
- The risk-seeking approach is to take more risk and hope for the best.
- Risk-neutral organisations are prepare to take short-term risk for long-term payoff.
- If we are risk-tolerant we will take no special measures to respond to current risk.
Which of these risk attitudes is appropriate today? Each one could be useful in different uncertain circumstances. Our choice will depend on how we perceive the emerging situation and how we think it might affect our chosen objectives.
One of the most important roles of managers and leaders across the business is to set the tone from the top in relation to emerging risk. This requires them to:
- Adopt an appropriate attitude to the perceived level of risk in our current situation
- Behave in line with this attitude and reward similar behaviour in others
- Communicate consistently about the new risk challenge and how we are addressing it
This will determine whether or not we meet our goals in these uncertain times. Every business faces the same emerging risks and how we choose to respond will make the difference competitively. If we get it right we will make better decisions, leading to lower threats and more opportunities, increased operating efficiencies, improved reputation, and more motivated staff. But if we get it wrong our business may not be around long enough to give us a second chance.
© Copyright June 2012, David Hillson/Risk Doctor & Partners
Risk Doctor & Partners
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