The Risk Management Cost Myth


Smaller organizations can be intimidated by the idea of starting a risk management program. The reality is, however, that risk management can be started on a shoestring. You commit to begin, then commit to improve. We will discuss a few tips in this post.

The first response to “cost too much,” of course, is compared to what? Compared to performing daily activities without any guidance about threats and opportunities? Compared to a catastrophe? Compared to a missed opportunity for substantial gains? Compared to improvement that adds up to dramatic change over time? In fact, failing to perform risk management costs too mcuh.

Even setting aside this basic value equation, consider these three points:

1. You’re doing it now. Almost every organization has some risk management principles in place.

Do you have insurance? Good — even though insurance is not the whole answer, you have at least considered risk management enough to shift some risk onto others.

Do you have staff meetings in which you discuss ongoing issues? Great, that’s a start.

Do you have a budget and work plan? Those are components of effective risk management.

Do you follow any metrics about your operations? Terrific.

Your risk management may be ad hoc, which means it is probably not a priority and almost certainly does not provide all the value it could. But each of these elements is a start.

2. It’s not rocket science. Risk management does not require complex modeling and high-end mathematics. Yes, many Fortune 500 corporations, and many banks, engage in complex financial and risk modeling. Some organizations engage in detailed scenario planning. As so-called “big data” becomes more accessible to smaller organizations, more (and smaller) firms will be able to answer deep questions with greater accuracy. But even if you can’t afford to perform high-end analysis, tremendous progress can be made in risk management by making the commitment, gathering data, and making basic qualitative and quantitative assessments about threats and opportunities based on that information.

3. Small changes lead to dramatic results. As with many business decisions, small changes add up over time. This chart created by James Clear dramatizes the intuitive point that taking small steps over time can create enormous impact. Using the limited resources available and taking incremental steps, your organization can make substantial, meaningful progress over tim.

So are you ready to commit? The road stretches before you, and the ride is worth it. We can provide maps, signposts, rest stops, and tune-ups along the way.

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Photo Credit: Jay Mantri


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