Managing risk is absolutely essential if you wish to optimise the benefit of a business initiative. That there will be risks is unavoidable. Identified risks can be managed through either avoidance or mitigation.
With risk avoidance, activities are undertaken in order so the situation that would trigger the risk can never happen. Mitigation however assumes the risk will be realised but plans or subsequent actions put in place that will lessen its impact.
To optimally manage identified risks it is also necessary that two of their attributes are understood.
- Likelihood of a risk being realised: This can be expressed in terms of a level of confidence.
- Impact if realised: This may be the dollar cost to the business.
Both of these attributes may consist of a range of values with the risk perhaps being expressed as having a range of possibilities.
In both the case of risk avoidance and risk mitigation there will be a cost associated with its achievement. These costs must also be identified.
With a good understand of the likelihood of a risk being realised, the impact on the business together with the cost of dealing with it, the feasibility of a executing a business initiative can be better assessed.