Risk is a concept human beings invented to help understand and cope with the dangers and uncertainties of life. Subjective judgments are made at every stage of the assessment process, from the initial structuring of a risk problem to deciding which endpoints or consequences to include in the analysis, identifying and estimating exposures, choosing dose-response relationships, and so on. These are four important things to keep in mind when discussing risk.
Your Organization’s Risk Appetite
Reliability engineers often struggle with the concept of risk appetite and how it impacts decision making. The long answer is that risk appetite is real and has been recognized by decision analysis academics and gurus over the past fifty years. The shorter, more practical answer is that risk appetite exists in every organization, but it is more implicit than explicit.
Context (timing and position) significantly affects risk appetite.
Solomon, J. D. (2022, October 25). Can understanding risk appetite help a project manager’s career? J.D. Solomon Solutions. https://www.jdsolomonsolutions.com/
The Pesky Risk Matrix Is Not Going Away
Risk matrices are one way to perform risk-based prioritization. The approach is qualitative (i.e., it describes the quality of the risks) and does not specifically measure the risks as we normally think in terms of weights and measures. In some cases, a qualitative approach (good-bad, high-medium-low) is sufficient for allocating resources; in others, it is not.
If performed, a risk matrix should be performed well regardless of your opinion of qualitative versus quantitative approaches for risk analysis.
Do the risk matrix well since organizations will continue to use it.
Solomon, J. D. (2021, November 5). Eight tips for improving your risk matrices. JD Solomon Solutions. https://www.jdsolomonsolutions.com/post/eight-tips-for-improving-your-risk-matrices
Incorporate Rare (Low Likelihood-High Consequence) Events
Rare event categories include Economic, Informational, Physical (key equipment), Human Resource, Reputational, Psychopathic Acts, and Natural Disasters. Another description can be extreme events. The thought process for including them is “externally driven.”
In the end, you will have to decide on a case-specific basis things like the quality of the flood-mapping prediction and mapping, whether a direct hit by the major hurricane is most important or one just hitting the region, and whether losing one decision-maker is just as impactful as losing a majority.
The important thing is to formally incorporate rare events into your project planning because we handle the normal stuff well.
Rare events make or break major projects.
Solomon, J. D. (2024, August 2).Tips for including rare event risks into new project development. J.D. Solomon Solutions.https://www.jdsolomonsolutions.com/post/tips-for-including-rare-event-risks-into-new-project-development
Operationalize Risk for Better Results
Which term, risk or surprise, makes the passage more understandable?
The terminology must be easily understood if risk management is to be more operational. That may be a little unfair to the reliability profession, where academics and analysts have a single long definition, but do not fight the simplified term “uptime” to operationalize the concept by simplifying it.
Demystifying risk – making risk more operational – may or may not be the goal of the risk (a.k.a. surprise) management profession. Making risk more operational should be the goal of reliability engineers.
Simplifying the communication is the key to making risk more operational.
Solomon, J. D. (2022, November 28). Operationalize risk by making it more understandable to front-line staff. JD Solomon Solutions. https://www.jdsolomonsolutions.com/post/operationalize-risk-by-making-it-more-understandable-to-front-line-staff
What to Do Next
If You Are New to Risk Management
Explore risk techniques. Standards like ISO 31010 provide over twenty techniques and support with definitions, strengths, and weaknesses of each. Choose two or three from low, medium, and high difficulty and master them. Understand how each applies under different operational contexts.
If You Are Experienced with Risk Management
Risk communication fails because risk managers and other technical specialists get too weedy, too fast, for decision makers. Every business leader has an intuitive definition of risk. Go with it rather than fight it. Bringing people together is easier than trying to change their minds and hearts when big decisions are on the line. Master a formal communication approach, like the FINESSE Fishbone Diagram®, for context where high-stakes decisions are at hand.
Two of My Favorite Quotes on Risk
Danger is real, but risk is socially constructed. – Paul Slovic
Risk does not exist ’out there,’ independent of our minds and cultures, waiting to be measured.” – Slovic and Weber
Important Things About Risk Management
Risk management is not just about selecting the right analytical method. It is about helping decision makers understand uncertainty well enough to make sound, timely decisions. The technical professionals who combine solid risk analysis with clear, disciplined communication will consistently have the greatest influence on the decisions that matter most.
JD Solomon is the founder of JD Solomon, Inc.., the creator of the FINESSE Fishbone Diagram®, and the co-creator of the SOAP criticality method©. He is the author of Communicating Reliability, Risk & Resiliency to Decision Makers: How to Get Your Boss’s Boss to Understand and Facilitating with FINESSE: A Guide to Successful Business Solutions.
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