Some insights on risk-taking

Life is about risk-taking. For there is no such thing as risk-free. When you do not do something, you carry some risk. When you do something, you carry risk too depending on the decision at hand. The best decision is therefore to do something and increase your odds of success. There are four strategies of risk management – transfer, treat, terminate, or tolerate. All these aim at optimizing opportunities and minimizing losses.

Every day, we must make choices. You want to maximize value and reduce losses. Do you stand for a political office, yes or no? First, what is the best which could happen if you do it? Then what is the worst that could happen if you do it? What is the best that could happen if you do not? What is the worst that could happen if you do not? The answers to these questions are different depending on the person asking them. For example, for someone who is already a public servant at a level of say Permanent Secretary, the worst that could happen if they do stand for an elective office is losing their current job. The best that could happen is winning the election. Now, you can compare this outcome against your current condition and decide accordingly.

You must balance probable value against current opportunities foregone. Because the laws of Uganda do not require a public servant to compete for an elective office while keeping their job, the possibility of leaving public service for an elective position becomes difficult depending on one’s seniority. A low earning public servant may easily make the jump, but not a senior person who is yet to retire.

Risk analysis is not an event. It is a process. For effective risk, there is a need for a cultural shift to make risk part of your daily decision making. Risk management is more about optimizing opportunities than it is about reducing losses.

Poor risk management leads to business and personal failure! Research conducted by Summit Consulting’s Business Intelligence Unit reveals that more than 30 of the companies (including some of the most significant financial institutions) that have collapsed in the last 10 years in Uganda failed due to poor risk management and awareness among stakeholders. A series of events characterized by bad decisions usually take place before corporate failures. People who fail to achieve their full potential usually fail to manage risk well.

As part of the research findings, the SCL Business Intelligence Unit discovered that lack of clarity on the role of stakeholders in proactive risk management for sound governance was one of the biggest factors causing corporate failures.  Such institutions relied majorly on traditional risk management practices that are operated largely in organizational silos within the business. They involve techniques such as brainstorming, setting up excel based risk registers of potential risk events, ticking the boxes of risk assurance forms, and making line managers responsible and accountable for the risks in their areas of operations.

The winners make better risk optimization choices.

ISO 31000:2018, the most recent best-practice standard for risk management, defines risk as to the “impact of uncertainty on enterprise objectives.” This means, if there are no defined objectives, there cannot be any risk event. Risk, therefore, are events that have a potential adverse or positive impact on personal or organizational objectives.

Risk management is about optimizing the two, to win amid uncertainties.

Copyright Mustapha B Mugisa, 2020. All rights reserved.

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