Risk Management in an Unpredictable Environment

Steps to Leading Your Organization to Success

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Scrolling through social media is a risky business today. It’s quite difficult to determine what is real and what is not. To be fair, leaders at all the world’s social media giant companies have laser-focused their efforts on attempts to limit and remove content that is, indeed, not factual.

It’s a battle that will rage on and is frankly unwinnable. But every once and a great while, a user can find a nugget that sets the tone for some real thought provoking ideas. I recently had one of those moments.

While thumbing through one of my favorite social media apps on my phone, I came across a video that made me pause for a moment.

Source:  https://www.tiktok.com/@rabatts

Clearly, the author of the video was making a comedic point… one with which I agree. But it still made me think.

Generally speaking, most humans do not possess the ability to envision their respective futures. Obviously, we simply are not creative or thoughtful enough to pull together the unending list of variables needed to make an accurate prediction as to what might happen in five years’ time. And to be completely fair, we have very little incentive to do so.

We are typically only focused on short term goals and situations. There is this preconceived idea that acting in the “here and now” is more important than planning for the future. That’s a fair assumption given what I wrote earlier about not being in possession of the variables needed to plan for the future.

Translation:  most organizations do not have a healthy relationship with risk. Put that thought in context of our ongoing unpredictable environment, and suddenly the potential for creating that healthy risk relationship collapses like a flan in a cupboard.

In fact, a survey from Gallup conducted before the COVID-19 pandemic began shines some light on this issue. Only 22 percent of employees strongly agree they could take risks at work that could lead to new products, services or solutions. While it seems stressful to consider risks at a time like this, one would almost advocate this is the most appropriate time to try.

I say all of that to articulate this point:  if your organization does not have a comprehensive risk management strategy, it’s time to get one. And it’s important to note, this strategy is not just the responsibility of CEOs and members of the C-Suite/executive team. It requires the entire organization.

Risk Management

Druckerian Observations

When it comes to the thinking about risk management, look no further than the man most consider to be the most influential business thinker of the 20th Century:  Peter F. Drucker. In his book, People and Performance:  The Best of Peter Drucker on Management (1977), Drucker outlines several lessons directly related to risk management… three of which I summarize below.

  1. Both efficiency and effectiveness matter.

Companies can, from time to time, sabotage themselves into being not only unproductive, but even counterproductive. That’s why there is a strong need for organizations to be in a constant state of innovation, abandoning things that aren’t working and focusing on continuous productivity. Both efficiency and effectiveness are critical to that philosophy.

“Effectiveness is the foundation of success-efficiency is a minimum condition for survival after success has been achieved. Efficiency is concerned with doing things right. Effectiveness is doing the right things.”

Peter Drucker, “People and Performance: The Best of Peter Drucker on Management” (1977)

After that statement, Drucker pointed out only about 15 percent of the activities in which organizations engage actually help the organization. As a result, organizations must identify not only opportunities for the business, but also risks. Doing so allows the organization to mitigate the risks and put best efforts forward with regards to opportunities with the highest return on investment (ROI).

  1. Focus on goals.

Goals are important to an organization. Drucker does not deny that fact, but those goals must be clear and must be able to be measured.  Otherwise, the organization can’t function.

“To be able to control their own performance, managers need to know more than what their goals are. They must be able to measure their performance and results against the goal. . . . These measurements need not be rigidly quantitative; nor need they be precise. But they have to be clear, simple and rational. They have to be relevant and direct attention and efforts to where they should go. They have to be reliable–at least to the point where their margin of error is acknowledged and understood. And they have to be, so to speak, self-announcing, understandable without complicated interpretation or philosophical discussion.”

Peter Drucker, “People and Performance: The Best of Peter Drucker on Management” (1977)

  1. Values and judgment are more important than processes and procedures.

Drucker, in his book, points out processes and procedures are important… but do not take the place of value and judgment. In fact, he pointed out instances of misuse to support the argument.

“The first is the all too common belief that procedures are instruments of morality. They are not; the principle is exclusively that of economy. They never decide what should be done, only how it might be done most expeditiously. . . The second misuse is to consider procedures a substitute for judgment. Procedures can work only where judgment is no longer required, that is, in the repetitive situation for whose handling the judgment has already been supplied and tested.”

Peter Drucker, “People and Performance: The Best of Peter Drucker on Management” (1977)

In Conclusion

To sum up, I go back to my original statement:  organizations must have a healthy relationship with risk. The reality is no organization can predict what the environment will be next week… let alone five years from now. A healthy and strong risk management strategy can not only prepare you to navigate the days, months and years ahead… but allow you to do so with agility and adaptability… and that provides a serious competitive advantage.