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Risk Thinking – a living appreciation process


By Michael Vincent

28 December, 2006

The management of risk requires a disciplined thinking approach that eventually becomes a subliminal activity of the individual. In order to translate from a conscious activity to a sub-conscious activity it must be disciplined and allow replication of process to the point of habit. How then do we create a habit that still allows us to identify and manage risk in a proactive and positive way without creating a template solution to problem solving?

 

If we separate process from activity then we can implement a disciplined thinking process that allows us to problem solve without being blinkered.  When I thought about this issue my mind went back some thirty years to the military and how they approached systems thinking, the suggested template is still relevant today and indeed we would class it as risk thinking in today's business environment.

 

Decision making process:

1. Identification and definition of issue: It is necessary here to formally identify the problem or risk faced, (this may also be a positive rather than a problem) and then formally define the issue. The definition will rank the risk in its place within the whole structure of the umbrella.

2. Gathering and analysis of facts: Once the issue is identified, defined and ranked it is necessary to gather all information that is available, here one must be open and receptive as this step is critical to the outcome of the process.

3. Development of alternative solutions: This is the test of the risk manager; a successful one will be open to a variety of solutions and their mind will not close to the possibility of a way out solution. When the method becomes a habit this step will ensure maximum data is absorbed into the sub-conscious for processing.

4. Evaluation of alternative solutions: This I call "the state of maximum confusion" - here the mind absorbs a large volume of data to the point where in a conscious sense the person feels stressed and potentially incapable of making a reasoned decision. Once this point is reached a decision is on the way. I find this point the most frustrating but also it must be reached in order that a decision is reached by systems thinking.

5. Selection of best alternative: This stage is the outcome of entering the "state of maximum confusion". The sub conscious mind sorts and processes the data that you have gathered and suggests to the conscious mind the best potential solution based on information gathered.

6. Analysis of possible consequences: This final stage is the real test of the risk manager in that it challenges the solution with a series of potential outcomes. The analysis of the potential outcomes lends real rigour to the decision and demonstrates the fundamental point that we can manage risk but we cannot eliminate it from the business environment.

The above sequence if used as a risk thinking process is still relevant today and creates a discipline of thinking and an approach to problem solving that will allow the identification and mitigation of risk to occur in a formal way that will eventually become a habit.  Once a habit, risk thinking will be an effective tool for the management of risk.

About the Authors

Director

Australasian Risk Management Unit

Faculty of Business and Economics

Monash University

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