If you’ve been keeping score at home, you know that the risk management process has three basic steps – 1) identify risks and opportunities, 2) evaluate the risks and opportunities and 3) plan for risks and opportunities. However, there is some work that needs to happen before you get into the nuts and bolts of managing your risks.

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This week let’s talk about what needs to happen before the process begins. There are some basic activities: inspiration, motivation and preparation. Over the last few months I’ve written several posts dealing with the “pre-activities”. Let’s take a look at each of them.

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(If you want to skip to the end and see the entire list for all 3 steps, check out my page “How to Manage Business Risk”.)

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5 Reasons You Should Care About Managing Risks

One of my earliest, and most popular posts. I briefly discuss five reasons a business owner should want to learn about and practice business risk management. This post sets the stage for why risk management makes sense for you and your business.

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I Want to Manage My Risks. Where Do I Start?

In this post, we answer the questions that need to be answered before stepping into ‘risk identification’ – the first step in the risk management process. What is a “Risk”?, Where do risks come from? and How do I find my risks?

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Fear Not Risk, My Friend. Master It!

This is one of the posts I am most proud of.  It discusses how there must be risk in order for there to be success – and not only in business. I share  some very personal examples with you.

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Should You Go Formal or Informal?

Processes can be formal or informal. There are times when one type is more appropriate than the other. I write about the differences between formal and informal and how your risk management process should always be formalized.

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The Value of Risk

Risk can impact a business in many ways but it is often hard to put a hard value on it. This post presents a real-life example where a company made a critical decision that clearly shows how risk can have a very real value, to your business as well as to your customers.

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Permission to Make Mistakes

A company or organization with a ‘mistake avoidance’ culture is striving to avoid negative events (i.e. mistakes). An organization that strives for perfection but accepts mistakes is working to create positive events. The two groups have very different characteristics that will lead to very different outcomes.

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10 Steps to a SMB Risk Management Process (guest post for ClearRisk Inc.)

I wrote this post to layout the roadmap for small and medium-sized businesses that are just starting to set up their risk management process. There are some key events that have to happen before you jump into brainstorming about the risks and opportunities facing your business.

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I hope the posts above provide some useful information, motivation and inspiration for you. I would love to hear your thoughts, comments and suggestions. Please leave comments on this post or on the individual posts above. I read and reply to every one of them.

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Image by UnstablePixel via Flickr

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>
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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.

Over the last couple of months, I’ve walked through the process for small business risk management with you. I thought it would be a good idea to capture all of the “how to” posts in one place.

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Take a look at the compilation. My hope is that after reading all the posts below you have a general understanding of how to manage risks and opportunities for your small business. More importantly, I hope you see the benefit of incorporating formalized risk management into your daily business life.

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Introduction & (hopefully) Motivation

5 Reasons You Should Care About Managing Risks

I Want to Manage My Risks. Where Do I Start?

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Step 1: Identify Risks

3 Categories of Risks

Easy Money! Manage Your Opportunities

The 5 Coulds Technique

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Step 2: Evaluate Risks

Evaluate Your Risks, Part I – Why?

Evaluate Your Risks, Part II – The First 2 Steps

Evaluate Your Risks, Part III – The Last 2 Steps

The Miracle of the 80-20 Rule

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Step 3: Plan for Risks

Mitigate Risks, Exploit Opportunities!

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I know, risk management sounds scary. Hopefully, what you read in the posts above helps make it less scary. As we continue our discussions you will see that there’s nothing to be afraid of. In reality, you’re already doing it every day – you just don’t realize it.

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Remember, risk management is only two things: working to avoid or minimize the bad things that could happen to your business and working to take advantage of the potential good things.

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Can you think of any management activity that isn’t driven by a risk or opportunity? I can’t.

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How do you feel about the process? What is your impression about what I’ve written – too simplistic? too complex? unclear? How am I doing for you? Let me know.

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 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?

My friend Jill and I were talking about the business risk management book I’m working on. Jill consults with small businesses and was saying how many small business owners are hesitant or even resistant to planning. Many just don’t feel that they have the time or are intimidated by the process and the required effort. “Why should they care about risk management, Tom?”, Jill asked. It’s a very good question.

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In my mind, there are 5 reasons a business owner should want to learn about and practice business risk management. By implementing business risk management, you can:

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1. Avoid bad things that are likely to happen to you.
2. Minimize the consequences of bad things that you can’t avoid.
3. Identify and take advantage of opportunities you may not see.
4. Do more than just insure against a few risks, with little or no added expense.
5. Join the best-run businesses.

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Let’s briefly talk about each reason…

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Avoid bad things that may happen to you

Practicing risk management will help you identify risks that can have disastrous impacts on your business, evaluate them and make plans on how to avoid them.

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Minimize the consequences of bad things that you can’t avoid

Even the best practitioners of business risk management can’t avoid all risks. Fortunately, the risk management technique I teach allows you to make plans on how to minimize the impact of those unavoidable risks, before they occur.

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Identify and take advantage of opportunities you may not see

As you go through the risk management process, you will also identify opportunities to improve your business. The technique helps you prioritize your opportunities and pick the lowest hanging fruit first.

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Do more than just insure against a few risks, with little or no added expense

You already buy liability insurance, property insurance, etc. to manage just a few of the risks facing your business, and those risks are some of the least likely to occur to boot. Why not follow through with your decision and manage the most likely and most potentially damaging risks if there is little or no expense involved?

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Join the best-run businesses

The best run businesses don’t leave anything to chance. They use all the information that is available to them to identify threats, find opportunities and make plans for both. And, the best run businesses don’t do anything that doesn’t yield a return on their investment of time. Risk management fits the bill on all counts.

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Imagine the comfortable feeling of knowing that you have plans for dealing with your biggest risks. Visualize the excitement of finding opportunities you hadn’t thought of yet. Think of the great satisfaction that comes from knowing that you are doing what only the best-run companies do. It is possible. I want to help. Let’s start today.

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What can I do to help?