There is no such thing as zero risk — and nor should there be. Human propensity to take risks has sent us to the moon, developed life-saving medicines, and is a key for our creativity.
But unmanaged risk can undermine business. There are ways to manage risk and there is an expectation that a leader takes a major role in risk mitigation’. In fact, every good leader will have a strategy to be able to achieve their vision while also managing the risk of failure.
The global standard framework for risk management has four key steps:
The most difficult part of this process is the first step: identifying the hazard or threat. This challenge is twofold. Either people don’t proactively look for the threats, or they don’t see a threat for what it is (it exists, but they fail to recognise it). Some threats are hidden, some develop over time — and some just seem to leap out of nowhere. However, there are two major flaws in the risk management process.
There is an axis on a standard risk matrix that measures the likelihood of an event occurring; from extremely likely through to rare. However, the problem with this becomes obvious if we use the example of a car accident. Someone who has never been in a car crash, imagines the likelihood of one occurring is rare, but a person who had one last week will have a completely different perception. Human beings are constrained by their imaginations, and in many cases simply can’t ‘imagine the unimaginable’. This is what adds shock to the horror of events we could not imagine happening; whether it’s a financial disaster like the collapse of Lehman Bothers or a horrifying tragedy like the attack on the Twin Towers. So, while this limitation on our imagination has a positive side that gives humans a willingness to take risks, the flip side is that it can cause ‘risk myopia’ that makes it hard to avoid, or deal with, catastrophe.
The second flaw is that we generally use a risk management process that treats risks as static. The fact is, everything is in a constant state of change — and that includes risk. One minute you’re safe, and a split second later disaster can loom. In other words risk is dynamic — which is why the pilot doesn’t turn off the seatbelt sign until we are safely at the gate.
Regardless of the limitation of each part of risk management, the outcome for a business leader is the same: if they don’t see the threat, can’t imagine one or doesn’t believe it will ever come to pass, they won’t have put controls in place to mitigate the impact of a problem when it happens.
And it all comes back to the one critical leadership success factor. Leaders must have visibility and see things for what they are: the true picture. It doesn’t matter how big or small the business is, the leaders need a risk mitigation process comprising accurate information based on good visibility — otherwise they’ll find themselves in trouble. And controls only work if they are monitored and checked to make sure:
Many people view measuring risk as a measurement of paranoia; but a leader must also be able to use their imagination both in achieving vision of their business but also perceiving what could undermine or destroy it (however unlikely).
AI has the potential to be an extraordinary tool for leaders in managing risk. AI doesn’t get distracted or forget to check. It helps with the threat identification process and signals the leader with an alert when it spots a problem. Furtherer, the speed at which AI will eventually be able to scenario-plan — to ensure risk mitigation measures are effective — will surpass anything a few humans can do. Humans will be able to use their imaginations more expansively and safely when there are systems and balances to avoid myopia, complacency and disaster.
Seeing the truth isn’t a game, it’s survival.