A Simple Way to Evaluate Risk
Think of the likelihood of a negative outcome (risk) existing inside a 2x2 matrix with probability on one axis and severity on the other. Sketched on paper, it looks like this:
Most things that have high severity (plane crash) have low probability. And most things that have high probability (common cold) have low severity. It hasn't always been this way - you were 100x more likely to be murdered in 1311 than 2011.
As a business leader, it's your job to anticipate the range of possible negative outcomes your organization faces and develop a framework for thinking critically and planning thoughtfully about risk.
Take a moment and think how you would plot these scenarios on our probability/severity matrix:
Hard drive failure on a critical business machine separates you from your data
Interpersonal conflict derails the team's effectiveness
Outside competitor steals your largest customer
Success breeds complacency breeds lack of success
Here's how you might posture your response to each area of the quadrant:
Low probability / low severity: identify and ignore. The cost to actively mitigate these risks is more than the potential damage they could cause.
Low probability / high severity: identify and prepare. These are often events outside your direct control but still require an incident preparedness plan and training.
High probability / low severity: identify and mitigate. Make continuous improvement your goal. If these risks recur often, you can learn to anticipate and improve your response.
High probability / high severity: identify and eliminate. Hopefully very few things fall into this category, but the ones that do require your attention. Left unchecked, they will harm you.
Risk is everywhere. Plotting it on this matrix is a helpful tool to ensure fear doesn't drive your decision making and you can make wise and data-driven responses.
Developing your capacity able to manage uncertainty and make strategic bets to improve your organization's preparedness will pay off in the long run.
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At Trellis Group, we believe chaos is the enemy of the small business. It's our mission to partner with small business owners and their teams to develop the managerial practices and processes to crush chaos. Revenues go up, anxiety goes down, and work becomes a force multiplier for good in the lives of your people. Reach out to discover how the Trellis Group can help you crush chaos.