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Risk Management – Beyond Mitigation

I have a tremendous pet peeve that I am going to share with you – it’s the misunderstanding of risk by managers around the world. We are currently working on a number of projects at work, and are paying close attention to the risks associated with them. I could practically make a drinking game of the phrase “what is your mitigation strategy?” – except that players would be completely drunk within 15 minutes of the start of the meeting.

What is my issue? Mitigation is only 1 of 4 strategies that you can employ when dealing with risk. So rather than creating a column in your worksheet labeled “Mitigation” you really need 2, one for “Strategy” and one for “Action Plan”. The action plan is the implementation of the strategy. So what goes in the Strategy column? You have 4 choices:

 

  1. Avoidance
  2. Transference
  3. Mitigation
  4. Acceptance

Take for example your house – one of the risks of home ownership is that a fire could start and wipe away your house and all of your belongings. We could employ any of the above techniques to our home ownership example (and in fact, usually apply multiple).

 

  1. Avoidance – you could decide not to buy a house at all. No risk of fire then! 
  2. Transference – this is what most people do – they buy insurance! They have transferred the financial risk of a fire to an insurance company. Note that not all of the risk has been transferred, there is usually a deductible involved in the case of a claim event. This provides an incentive to the insured to work to minimize the risk of said event.
  3. Mitigation – You could build your house out of non-flammable materials (an igloo, maybe) or flame retardant materials. You could also install fire sprinkler systems. These are examples of mitigation techniques designed to lessen the impact of a fire.
  4. Acceptance – You could just accept the risk and live your life. This probably isn’t the best approach when it comes to owning a home, but note that even with an insurance policy, you are accepting a certain amount of risk based on the deductible.

I may be overstepping my bounds here, but the other aspect to risk management to understand is that not all risks are bad. In fact, if some turn into issues, they may actually present opportunities to the person or company experiencing them. The recent financial crisis in America is a good example of a risk (extension of credit to borrowers tightening) that presents an opportunity for many. Companies may have implemented a strategy of having significant cash reserves in order to mitigate the risks of not being able to get loans. They now find themselves in the unique position of having a stockpile of cash to use to purchase land (maybe they want to expand their production facilities) or provide loans to other cash strapped companies who are issuing bonds.

Ok – I’ll get off my soap box for now. If I’ve piqued your interest and you want to become a more informed manager of risk, check out the book Enterprise Risk Management: From Incentives to Controls. These techniques apply to projects, programs, companies and even your own personal life.  

Patterns of Procrastination

For years I have beaten myself up over the occasional tendency to procrastinate on certain tasks. So when I heard about the book The Now Habit, I was eager to read and learn not only why I exhibited that tendency, but gain a framework for dealing with it. Fortunately, this book lived up to both of those traits – but it takes a lot of work on the part of the reader to reach these outcomes. Tonight, I realized that I had reached a turning point in my own thinking when I saw witnessed a fellow human procrastinating over homework. She was looking at her assignment and saying “Then I have to do this, this, and four more things. I’ll never be done!” I know the feeling.

The book quickly points out that we are not born when the instinct to avoid, or put off doing work. Procrastination is a technique we use to avoid the feelings of being overwhelmed or imperfect. I personally find myself with those feelings routinely. Sometimes there is a task or project so daunting, that I lose sight of what I can do TODAY to move it forward because I’m overwhelmed by ALL of the work that has to be done. I’m also very critical of my work – not to mention that I work with a bunch of critics, too! When you are afraid that your work isn’t going to be good enough, to be perfect, a typical pattern is to put off doing it. In my example above, Madison wasn’t worried about perfectionism (although her mom told her to take her time, don’t feel rushed, and do it right) – but was definitely overwhelmed by the amount of work to be done. I told her to focus on the one task she was working on and not worry about the next one until this was finished. It seemed to work in terms of getting her focused. I guess that book learnin’ is paying off!

So if you find yourself procrastinating, or think you are a chronic procrastinator, take a step back and look at your situation. Maybe even check out this book. There is no magic pill, but it’s definitely a step in the right direction!

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