In A Better Way to Think About Risk, a recent Harvard Business Review article, Srini Pillay makes the case for evaluating risk more holistically. Recognizing that “risk assessments” can threaten initiatives, he suggests that in fast-changing environments organizations keep three important points in mind. This post notes those points and discusses what to do with them.
What it is. Pillay is a doctor and executive coach known for writing Life Unlocked, which attempts to apply contemporary neuroscience insights to the self-help field. In A Better Way to Think About Risk, Pillay suggests that neuroscience posits three teachings relevant to risk assessment:
- (1) evaluation of risk has both conscious and unconscious components, so teams should seek to make invisible factors a visible part of decisions.
- (2) Risk is not an unalloyed negative, so teams should not shy away from risk. And
- (3) Failures can improve outcomes for teams that build resilience and learning into their systems.
Why it’s important. All three principles are important to nonprofit risk and startup risk, and each is common on our blog.
We emphasize that individually humans have cognitive distortions that can undermine effective risk assessments. By making risk evaluations conscious processes, and by engaging others in that process, humans can avoid the costs of poor risk assessment and instead, together, see things more clearly than any individual.
We also emphasize that risk is not negative: risk is merely uncertainty. Any uncertainty can have positive and negative aspects. Thus, effective risk management evaluates both threats and opportunities.
Finally, we emphasize that effective risk management depends upon being open to mistakes and failures, creating environments in which learning is more important than blame, and evaluating systems for maximum leverage. Teams and organizations should build risk-nimbleness and resilience into their processes and controls, so that their organizational DNA includes self-healing and self-improvement.
What to do. Pillay’s article reinforces that every organization benefits from having processes in place to deal with risk. Perform a risk inventory to know what threats and opportunities confront your organization. Create a risk register to account for those threats and opportunities and assign them to specific owners. Stop blaming, and start learning.