Categorizing Business Risk

I heard a great story on NPR a few weeks ago, discussing the environment and whether the actions of ordinary citizens really make an impact or not. During this news story, they talked about the swirl of of knowledge, facts, data and science surrounding environmental issues as follows:

  • The known knowns
  • The known unknowns
  • The unknown unknowns

In the case of the environment, it was fascinating to hear the expert talk about what fits into each category – but then it struck me that these same categories apply when looking through the lens of managing business risk. When business leaders put things into the wrong category, or make incorrect assumptions, they can miss managing expectations and miss the risks that are lurking out there.

In my experience, most leaders typically think that the core building blocks for a successful strategy, change project or new initiative fall into the known knowns category. But I’ve seen so many things that cause stumbles along the way…like an unexpected new business acquisition that changes the game, a sponsor who leaves the company, lack of contingency built into the budget and very little proof of concept testing with customers. Operating with hubris by shutting our eyes to risks that may lie out there and believing that the unexpected will not happen causes surprises. Risk assessments, using the construct of the knowns and unknowns, can be incredibly enlightening and productive when leaders are open to the feedback and committed to build the mitigations into the plan.

Here are some of the common questions I’d challenge you to think through as you are categorizing and evaluating your business risk:

  • What’s your business case? How confident are you that you can achieve it?
  • What’s the case for change – for your business and your audience?
  • Who’s the executive sponsor? Does s/he have the stomach to make the tough decisions?
  • How are you measuring achievement of goals?
  • Do you have the right vendor partner to support your implementation and share your risk?
  • Who is likely to thwart your initiative and throw roadblocks in your path?
  • Do you have contingency built in to help you stay on track with your timeline (and budget)?
  • Is your team behind you 100% or just telling you what you want to hear?
  • How confident are you that your customers will accept or embrace your service, product, or the change in behavior you’re asking for?
  • Who is accountable for the day to day leadership?

I think this kind of an easy, informal assessment can be a powerful way to frame your discussions on risk. What other questions would you ask?

Sheri Browning