We’ve all said it, “I was just lucky.” Sometimes it’s even true, but most of the time we know it’s not. Success and good fortune don’t arrive as random outcomes. We create our own good luck by coupling careful preparation with a keen eye for opportunity. Now turn things around, and think about bad luck. Like good luck, bad luck doesn’t occur randomly either. Bad luck is simply a failure to recognize and prepare for risk, which left unchecked brings unwanted distraction, disruption and expense to our organizations.
Thinking about risk is easier than you might think. Begin by identifying and organizing your risks into three different categories: 1) known-knowns, 2) known-unknowns and 3) unknown-unknowns. Known-knowns are risks we understand thoroughly. We may not know exactly when they will happen, but the likelihood of an occurrence is at least reasonably predictable. Contract disputes and work place accidents are great examples. Known-unknowns are risks we can identify but have hardly a clue if or even when they might occur. Utility failures and fraud are examples that might fall here. Finally, unknown-unknowns are the most stubborn of all as we simply don’t know what we don’t know. The real point to this last category is to stretch our thinking for the benefit of the first two categories.
Dealing with risk falls into three categories as well: 1) avoid, 2) mitigate and 3) insure (includes self insurance). Avoidance comes from rethinking the source of the risk and eliminating it from concern. Mitigation is a big category and includes training, process, policy and procedure. Finally, insurance is an approach widely understood and is generally self explanatory. All three options, avoidance, mitigation and insurance, are subject to basic cost/benefit considerations.
Help protect your organization’s future by taking the time to document and plan for risk. A few hours invested in thinking critically about your organization’s risk exposure may be the best investment you’ve ever made. Who knows, one day someone may even call you lucky!
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About the Author. John Sherwood is the founder and Managing Director of CExOGroup, a professional services firm supporting the leaders and capital partners of privately-held companies in the mid-Atlantic region with assessment, advisory, management and recruiting services.