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It was a lightbulb moment. A few weeks back, a friend and I were talking about  the tendency of some companies to analyze and hold meetings, hold meetings and analyze, discuss, research and discuss again without taking any action. We were interested in the root cause of the perpetual analysis (a.k.a. analysis paralysis). Was it an extreme desire for precision and perfection? Or was it a fear of making mistakes?

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At first thought, it would seem that either approach would be ok for a business, right? We talked about the differences between a company striving for perfection vs. a company striving to avoid mistakes. One is a team working towards a positive result. The other is a group striving to avoid a negative result. It turns out that there is a big difference…

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The first company will have a tendency to pull together as a team of teams and achieve that “synergy” all us managers talk so much about. Efficiencies will be high. Problems will be seen as “challenges” and “opportunities”. Morale will be strong. Conversations will be motivating. People will be having fun at work as they innovate and achieve together. Setbacks will be discussed, learned from and forgotten. The overall energy will be positive and customers will notice.

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The second group will be quite different. Each person will be working for themselves, focused on being blameless for any issues. The team will be inefficient and somewhat dysfuntional. Problems will be seen as “obstacles” and “showstoppers”. Morale will be poor and stress levels will be high. Conversations will be draining and everyone will be counting the minutes until quitting time. Innovation will be non-existent. Setbacks will become crises, dwelled upon and never entirely forgotten, but there will be no lessons learned. The overall energy of the company will be negative – even if the company itself is successful – and customers will notice.

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How many companies out there have evolved into a ‘mistake avoidance’ culture? I bet the number would scare us. I would also bet that you could name two or three examples right off the top of your head. (It’s not hard to pick those companies out when you’re looking.) Is your company one of them? If so, what action can you take right now (and I mean right this minute…) to start to change?

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Might I suggest that you give yourself and your employees permission to make mistakes?

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p.s. Remember, my friend, as I’ve written before: there can be no success if there is no risk. Dare I say there can be no success if there are no mistakes? I dare. Please share your thoughts…

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• Culture of Failure? (ericbrown.com) <very good post>
• 4 Steps to Recovery (theengagingbrand.typepad.com) <will be helpful if you take me up on my suggestion>

Over the weekend I ran across a tweet that got me thinking:

You must risk something to succeed. Where there is no risk, there is no chance of success.

The tweet originated with Steve Keating (@LeadToday). It inspired me. The message applies to so many facets of life. Let me explain…

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As I let my mind go with the thought, the first place it took me was back to college. I got my BS degree in aerospace engineering. One of the first things you learn as an aerospace engineer is about the trade-off between safety and performance. You can have optimum performance or you can have optimum safety, but not both. Military aircraft designers accept much more risk to pilot, passenger and aircraft than commercial aircraft designers.  The military designers have no choice. They must accept the safety risk in order to squeeze out as much speed or maneuverability as possible. They risk safety to succeed in performance.

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Next my mind went to a more personal level. I got divorced a few years back after 20 years of marriage. I think it’s safe to say that there is nothing scarier than entering the singles scene, especially after so long. Every deep seated insecurity that had been beat into submission suddenly bubbled to the surface, amplified by the cryptic communication of today’s online dating scene. (My experience with online dating was a daily exercise in abject humiliation.) I soon learned that if I was going to find the woman of my dreams, I would have to share the real “me” with the online public. I would have to make myself vulnerable to judgment, critique and evaluation by perfect strangers. I had to risk self-esteem to succeed in finding true love.

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I thought about job changes, family re-locations, business start-ups, business shut-downs, financial investments… all them involved risking something in order to see some success. Even writing this blog and establishing a relationship with a community (that would be you, my friend) requires risking my self-confidence and reputation to succeed in spreading the word.

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You are probably asking about now, “So what the hell does this have to do with risk management and my business, Tom?”, as you fidget in your chair…

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Here’s my point. You can’t succeed if you don’t accept risks. Risks are unavoidable. Risks are necessary. Don’t be afraid. Don’t procrastinate. Learn to master risk. Succeed.

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p.s. You’re not in this alone. There are resources and nice people out there who can help. Leave a comment to the post and join the discussion. I want to hear from you. Take a risk…

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p.p.s. Thanks for the inspiration, Steve.

It’s the last week of 2009 and I owe you a blog post. I know I’ve promised that I will run through the third step of the risk management process – planning for risks – but I want to hold on to that topic until things are back to normal after the holidays. Stay tuned. In the meantime, let’s talk about risk management and small businesses…

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In a recent comment on a Professor Pinch post, I listed three reasons that small businesses don’t practice formalized risk management. In my opinion, small business owners either:

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1. Recognize the need for risk management but choose to ignore it; or
2. Recognize the need for risk management but assign it a low priority; or
3. Don’t recognize the need.

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I’m sure there are some examples of each reason out there in the world of small business, but which one is the primary reason? If I had to bet, I would put my money on #3. I just don’t think the majority of small business owners have been exposed to risk management – what it is, how to do it and what’s in it for them. It’s not an intuitive technique that entrepreneurs just pick up on their own. That’s the reason I started writing this blog – to provide some practical, easy-to-understand information on risk management specifically for small business owners and managers.

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But I’m not the only one. There is a group of us on the Internet that does a pretty good job of describing how to manage risks and why businesses should be doing formalized risk management. Unfortunately, I’m pretty sure we’re not even scratching the surface of the small business audience. (There are A LOT of them out there – here are the stats.) Most small business owners just don’t have time to read blogs or follow people on Twitter. They are too busy trying to maintain and grow their business.

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I would bet that the next most common reason for not doing risk management is #2 – small biz owners recognize the need, but they consider it a lower priority so it is rarely done. Again, most small business owners are busy maintaining and growing. They would like to work on proactive and preventative things, but it’s hard to set aside the time when the here and now demand so much attention…

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In spirit of completeness, I should address reason #1. I don’t think there are many small businesses out there that fall into this category, and frankly I’m not interested in those that do. Now if we were talking about large businesses, I think there are many execs and managers who know about risk management, but choose to ignore it.

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So How Am I Going To Help?

My goals for 2010 include addressing both reasons – #3 and #2. I will be working to reach out to the small business audience more effectively. I want to provide easy to read and easy to use information on what risk management is, what it does, how to do it and why it’s a good thing. I want to take away any perception that risk management is scary. And I want to put the message in as many ears as I can.

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Once the small biz owner/manager understands why risk management is so necessary, we need to help find ways they can implement it in a way that doesn’t scare the crap out of them. Let’s face it. If a formalized risk management process is perceived as complicated, expensive, time consuming or any combination thereof, the small business owner isn’t going to do it. Simple as that. Our challenge is to help small businesses find ways to reap the benefits with incurring all the burden. Not an easy task.

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So I’m asking for your help, kind reader. What are the best ways to get the attention of super-busy small business owners and managers? What are the best channels of communication? Am I off-base in thinking that time demands will be the greatest obstacle to overcome once small business owners understand the need for risk management?

I feel like I’m procrastinating. I finished my initial series on step one of the risk management process – identifying risk. Now the plan is to move into writing about step two – evaluating the risks. I’ll get there, but I’ve got one more topic I want to address. Let’s talk about the traits of world class business risk management…

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I’ve been thinking about these for about a week now.  The idea was triggered by a comment exchange with Kristen on my last post. We talked about “formal” process vs. “formalized” process. Kristen is absolutely correct that risk management needs to be formalized – meaning done in a proper and regular form. But I don’t think it needs to be “formal” – using the definition “stiffly ceremonious, burdensome or onerous”. I know it’s semantics, but the difference in perception will be the difference between effective execution and just going through the motions.

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That exchange about a specific trait got me thinking about what other traits would characterize world class business risk management.  Here’s what I’ve come up with.

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Regular and Periodic

I think, first and foremost, a world class business risk management organization executes their risk management process regularly. It might be monthly, quarterly or annually, but risk management will be a regular and consistent task. These companies recognize that the situation is constantly changing. They appreciate the need to stay on top of new risks that may develop or existing risks that may become more probable.

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Formalized Methods

Risk management must be formalized. What I mean by that is the steps in the process must be repeated consistently. When a task or process is performed on a regular basis, it will become formalized over time. And more than likely they will be written down, which brings us to the next trait..

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Documented Process

Any company that has a world class process will have it documented. The owners and managers will understand that the methods need to be written down so they can be repeated consistently, communicated to others and continuously improved. The owners will also recognize that the results of the process need to be documented so they can be communicated, evaluated and referred to later.

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Quantitative Methods

I’ll be the first to tell you that the numbers generated by a risk management process (e.g. the probability of risk occurrence or the potential impact of the risks) are not “real”. They are totally subjective and based on a team’s best judgment. However, just because the numbers may not be precise does not mean that they have no value. The numbers are necessary to successfully evaluate the risks and prioritize your plans.  As long as the methods are consistent, the resulting numbers can be used in comparison with each other.

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Part of the Organizational Culture

A company that is world class gets that way for a reason – because they place great importance on what they are doing. World class business risk management will be performed by organizations who are passionate about the benefits of the process and have intertwined the concepts into the company culture.

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Comprehensive

Business risk management can be (should be) applied to all aspects of business – strategic planning, marketing, operations, finance, IT, quality, human resources, etc.  World class companies will have some form of risk management implemented throughout.

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Communicated

This trait may be redundant with some of the others, but I included it anyway because I think it is critical. The concepts of business risk management will be communicated regularly by world class companies. There are many stakeholders to risk management: employees, owners, investors, bankers and insurers to name a few. Each stakeholder group cares about at least some of the risks facing the business. World class organizations recognize this and make a point to talk about risk management methods, benefits and results regularly.

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Well there you go. That’s my take on the traits of world class business risk management. Have I missed anything? I know there are a few of you out there reading this. I’d like to hear your opinions…

I was thrilled to read Tim Berry’s November 12 post in his Planning Startups Stories blog. He was talking about 5 basic entrepreneurship skills that business schools don’t teach. One of the skills Tim listed was risk management. He wrote:

I don’t mean the technical side of risk management. Business schools are generally excellent at teaching the numbers and analysis of risk, mathematical tools to evaluate the time value of money, for example, and formulas to compare technical investment risk like the internal rate of return (IRR).

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I do mean living with risk. Not betting things you can’t afford to lose. How to sleep at night when your customers owe you enough to destroy you simply by failing to pay what they owe. How to figure out which spend is a reasonable risk for generating a future payback, and which isn’t. How it feels to take a second mortgage, or how it feels to tell a graduating high-school senior with a great record that there isn’t enough money for the college he or she has earned.

The risks Tim described are what I’ve termed “Business Risk” (creative, eh?).  Business risk management includes more than insurance and hedges. It is the continuous, active consideration and planning for all of the potential good and bad things that could happen to your business. The process doesn’t have to be formal or sophisticated. Expensive software and consultants aren’t required. Managing business risk is a simple process. But, it’s a simple process that consumes entrepreneurs (whether they realize it or not) and should consume owners/managers of established businesses. In fact, maybe the day-to-day effort invested in risk management is what defines the “entrepreneurial spirit”.

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How do you feel about that last statement? Agree? Disagree? Tell me why.

I was working on my next post – 3 Categories of Risk – but got sidetracked by Naomi Dunford’s latest . It got me thinking. In my first post, I pledged the following;

I commit to do my best to engage you and be engaged. I will strive to earn your trust and trust you. I will endeavor to write things that you may want to pass along and discuss with others.

After reading Naomi’s post and all the comments, I realized that I’m not doing a very good job at living up to my commitment. Sure, I’m covering the subject matter in a very businesslike manner. But, if I want to engage you and earn your trust there needs to be more sharing - more than the bio, more than the LinkedIn profile and more than an occasional tweet…

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So what’s in it for me? Why am I bothering with writing a blog? There’s no advertising. I’m not soliciting consulting gigs or peddling the next great risk management toolset. What’s the motivation?

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The short answer is “I want to help.” (and I know your collective eyes are rolling with a smirk..) I truly believe that a majority of problems faced by businesses can be avoided or at least minimized with some basic risk management. The problem is that many business owners/managers a) don’t think about risk management; b) don’t care about risk management; c) don’t have time for risk management; or d) some combination of a), b) and c).

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I want to change that. I have developed a method that is simple, practical and effective. It just needs to be evangelized and taught. That’s why the blog is here and that’s why I started a Twitter account. In time, I hope to complement both with speaking opportunities and articles.

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Eventually, the book I’m finishing will show up here. Again, the primary purpose of the book isn’t to generate revenue (although it wouldn’t hurt my feelings to see a little return on the effort invested). I think there is a need for a straight-forward “how to” book that small business owners can read, understand and implement quickly. I am going to address that need.

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So what’s in it for me? I see an opportunity to provide a positive influence to the “long tail” of businesses and make a real difference in the world. Call me an optimist or naive – probably true on both counts – but I think we can do it.

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You’ve stuck with it and read the whole post. So let me ask you.. What’s in it for you?