Some say risk management should focus solely on potential negatives. We disagree: effective risk management includes opportunities, as well as threats. Maps are always different from the territory, and the best organizations focus on exploring new territory and creating better maps. This month, we will be focusing on how to position your organization to identify and develop upside risks. In this post, I want to set some important guideposts.
1. Risk is not negative. It simply is. Too often, people think of risk as bad. It’s not. Risk is simply the recognition that we don’t know for sure how things will turn out. Risk management, therefore, is not about planning worst-case scenarios or worrying about what can go wrong. Effective risk management instead focuses on rigorously understanding what’s actually going on and planning for both positive and negative possibilities, so that a business can be agile in the face of uncertainty.
2. Focusing only on downside risks (threats) limits growth and sustainability. Startups have no problems seeking opportunities. Startups are synonymous with risk. Nonprofits, however, can be less willing to abandon what’s not working and seek something new. This is a mistake. As management guru Peter Drucker observed:
“Non-profit organizations have no ‘bottom line.’ They are prone to consider everything they do to be righteous and moral and to serve a cause, so they are not willing to say, if it doesn’t produce results then maybe we should direct our resources elsewhere. Non-profit organizations need the discipline of organized abandonment perhaps even more than a business does. They need to face up to critical choices.”
Peter Drucker, Managing the Nonprofit Organization (1990), at 10-11. Thus, he emphasizes, “Organize yourself for systematic innovation. Build the search for opportunities, inside and outside, into your organization.” Id. at 12. Over time, organized abandonment of what once worked becomes essential to sustainability and growth.
3. You can plan for opportunities. We have written before about how to explore and exploit opportunities. You can use pilot programs to test the waters before you commit to the voyage. You can create feedback loops to help your team think like owners. But this month, we will give you additional tools and practices that create and put you in the path of opportunities, so that they don’t pass you by.