Listen to: "Enterprise Risk Management [Part III]: 5 Examples of Positive Risk"
We thought we would finish up our mini-series of posts related to Enterprise Risk Management (ERM) on a positive note. A positive risk note, that is.
Most of us do anything possible to avoid risk, right? However, once we understand that there are different types of risk—each having their own potential outcomes—we might better put those risks into proper perspective. Positive risk is the type of risk that is also known as an opportunity.
What Is Positive Risk?
Positive risk is just one of the many types—along with negative, known, unknown, residual and secondary—that you are likely to face in your business.
Basically, a positive risk is any condition, event, occurrence or situation that provides a possible positive impact for a project or environment. A positive risk element can positively affect your project and its objectives. Often when teams know this risk, it provides even more reason to pursue and realize this opportunity.
As counterintuitive as it sounds, when discussing any type of risk, the response strategy when encountering positive risks is to work to increase the likelihood for this event to occur. The very word “risk” may throw off many newly minted risk managers, with its generally negative connotations, but take heart, positive risk is good for business.
But really, risk in general is not defined as specifically good or bad. It is merely an event that can have some type of potential on business objectives. However, since business leaders must protect the interests of their business, employees, clients and third party stakeholders, it feels more urgent to focus on the negative consequences in order to avoid negative impacts. The human condition generally dictates that we protect what we have, first and foremost.
As a practical and familiar daily example, we lock our doors and windows before placing our valuables and loved ones inside our homes. All the positives come after negotiating the negatives, but we certainly proceed to fill our home with good things, often based on positive risks like working overtime to afford a new high-tech television.
All that noted, it is just as important to concentrate on the positive aspects of risk. Once you have all the negative consequences of risk accounted for and managed, it is time to explore positive risk.
5 Examples of Positive Risk
One of the best ways to sum up positive risk is that it often boils down to having too much of a good thing. Even better, these risks allow for opportunities instead of consequences.
Let’s take a look at five examples of positive risk:
1. Positive Risk in Project Management
Every project leader develops a budget for their respective project and its resource needs. However, as in most things in life, there are often adjustments throughout the course of projects. Many times, a project finishes well under budget, which is technically an error that is attributable to the project leader’s miscalculation or lack of foresight.
Most project managers try to avoid the risk of miscalculating a project and bringing it in under budget, but it is hard to argue with the positive outcome of keeping more money for the organization. It is easier to re-allocate those funds than to need to recoup what is lost for going over budget.
2. Positive Risk in the Supply Chain
Supply chain logistics are often fraught with risks, but there are times when it works in your favor. Any time that you are able to deliver a good or service ahead of time to your clients, as long as it is convenient for them, you can certainly consider this a positive risk. Again, as long as clients have the space and other accommodations to facilitate early delivery, supply chain risks often work in your favor.
3. Positive Risk in Engineering, Designing and Building
Engineers and building designers often look at the materials and design plans in terms of how long a structure will last. If they strike out to build a structure intended to last for 20 years and end up with a 100-year project, the client benefits from the engineer’s positive risk. Such risk may result from an over-estimation of necessary funds, but the outcome is likely to please the client. If the budget did not greatly exceed the initial plans, it is likely to be considered a positive outcome by everyone since the client is likely to spread the word of the firm’s having exceeded expectations.
4. Positive Risk in Marketing
Marketing teams are often mired in demographic data to help project interest in a product, service or event. Sometimes these savvy teams may slightly miss the mark and attract an abundance of interest. While this may initially cause issues in an adequate amount of product or space to accommodate customers, adjustments can be made to allow for a positive outcome for everyone.
5. Positive Risk in Technology
Businesses are increasingly searching for new ways to incorporate technology for greater efficiency. More and more organizations are finding that, with such technological investments, they may be eliminating the need for some jobs within the company. While this type of risk is bad for employees who may risk losing their jobs due to technological efficiency, it does benefit the company in savings.
Are You Ready to Take on Positive Risk?
As you can see, positive risk does have its upsides and downsides. While it is set to benefit your own organization, it may well cause discomfort or disruption for another company, or even a person or persons in your own organization.
At I.S. Partners, LLC., we regularly work with businesses to come to terms with the need to explore positive risk and what it means to their organization. We can help you better understand what it is and how it can help your business.