Risk Management Approach

The following text was in fact a response to post @ allpm.com, wherein "risk" as opportunity identifier mechanism was discussed.

The article that you have been referring to primarily state that one should also look for opportunities. I personally believe that it all depends on person's mindset, and situation. Let me explain, what I mean by this.

The normal risk exercise is conducted with a mindset of "aversion", i.e. we want to avoid the risk. That is why, we do the exercise of identification, quantification, prioritization, and MMM. However, this is also true that this exercise is primarily carried out at a project level. As evident from the approach itself, the benefits arising out of this exercise are limited, as your gain is directly linked with the success of "aversion" of risk.

Now, let me broaden the scope; let us say you have to do the same exercise from a program / functional unit / organization perspective. It is obvious that in this case “aversion” exercise is not enough, and we need to broaden the scope to make an assessment from SWOT perspective. This is exactly where a relatively new approach fits in, i.e. "Strategic Risk Management" or "Enterprise Risk Management".

To be brief, this approach looks at strategy / functions / activities from a broader perspective, i.e. it would evaluate the strengths, weaknesses, opportunities, and threats. It would start from strategic analysis, and would encompass the working of an organization. It makes sense too, the reason being at this level "aversion" is not enough, as the environment is under change, and even to sustain at current level you would require more than aversion; for a simple reason, strategy cannot be independent of environment, and you work as per your strategy (hopefully).

Now, the question is, “Should we always go for the "wider" approach”? The answer is "NO". You have to assess the impact of work, cost associated with such study, and returns on proposed investment. If your project does not have any wide ranging impact (as true for many, if not most of the projects) on organizational functioning, the "aversion" exercise should suffice.

In essence, it requires a prudent decision to choose between the two. No approach is better than the other, it is the context, which makes one better than the other.

http://allpm.com/index.php?name=PNphpBB2&file=viewtopic&t=3043