Integrated Management of Prospect and Risk

As professionals we all have some notion of the concept of risk even if we do not understand the technical assessment tools and mathematics involved with the more challenging risk assessment processes. To manage anything in isolation is not the most successful approach and it is just as true of managing risk. Why do we put so much management attention on the downside risk issues and often ignore the upside which is prospect? As conscious beings we are demotivated or deterred by risks of losing something and motivated or encouraged by prospects of gaining something. Prospects propel us forward while risks retard us - whether we actually progress at all depends on our overall perception of whether there is likely to be a net gain and also that any individual prospect or risk is acceptable, for example, however much we are likely to gain we may not be prepared to risk losing something that we value.

Most of us have no difficulty in listing risks but apart from winning the lottery can we easily do the same when listing prospects? When we stop and think our mind often goes on the next meal and they say that men are constantly thinking about sex! To understand typical prospects that motivate us it may be useful to look at what Maslow said were the principal human needs and consequently form a simple potential classification for types of prospect. They include: physiological needs, safety needs, love and belonging, esteem, self-actualization and self-transcendence. Other researchers have suggested different lists of needs but we can get a good feeling for what prospects may be linked to.

Psychologists tell us that we are normally optimistic animals otherwise we would probably not get up in the morning. This means that perception of prospects generally dominates over perceptions of risk. Historically the prospects of hunting and obtaining food overshadowed the chance of us being eaten by a predator. Prospect and risk are like a horse and carriage but it is prospect that takes the lead and indeed must sufficiently outweigh associated risks to warrant us accepting them. On their own risks are always bad and taking them can only be justified by an acceptable level of prospect - the balance of risk and prospect must be heavily tipped towards the latter. See diagram below.

Organisations are just conscious super organisms that have prospect and risk perceptions which motivate and demotivate their strategic, tactical and operational behaviours. Organisations that do not manage prospect and risk in an integrated way when dealing with the myriad of uncertainties that affect the various facets of organisational performance put themselves at a significant disadvantage compared with organisations that do. Employing fully joined up management thinking such as the approach used in MSS 1000 is advantageous to an organisation. However, this is made more complex because the internal and external stakeholders of the organisation each have their own needs, expectations and aspirations and may be shared or conflict with other stakeholders. The challenge is to optimise the direction and guidance of the organisation through an effective fully integrated management system directing and guiding us to satisfy and not to dissatisfy the stakeholders while making the best use of resources.

If your organisation is not clear about who its stakeholders are including their needs, expectations and aspirations as well as their power to influence and affect the organisation, it may be timely to revisit your foundation planning as covered in MSS 1000. If you are not maintaining comprehensive prospect and risk registers to focus management attention in a proportionate way on all the key issues that affect customer and stakeholder satisfaction you could be at a disadvantage. Whatever management resource you have available in your organisation, an effective integrated use of prospect and risk management will enable you to get the maximum return on expenditure of effort.

Optimisation of Prospect and Risk

#RiskBasedThinking #IanDalling #IntegratedManagement #PDCA

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