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Sunday, 11 August 2013

A Problem to be Solved? Have You Assessed the Risks as Well as the Response?


About three years ago I wrote a blog post following a session with Vistage speaker Nigel Risner www.nigelrisner.com who gave us a little equation which I have used on many an occasion ever since. 

The equation was E+R=O or Event + Response = Outcome.  In essence, there are two possible uses: 

The event has happened and is immutable so the outcome depends absolutely on the response to the event. 

Alternatively again accepting that the event has passed and can’t be changed, if the leader decides what outcome is desired then it defines what the response should be. 

I was again reminded of the equation when I discovered a website in Atlanta, GA, USA, www.kentjulian.com selling wristbands bearing the E+R=O and in five different colours no less.  Even better, they also say: 

“I own the response” 

It once again gave me food for thought and I wonder if there isn’t a case for a slight modification to the equation.  After all, the outcome decision could be one of a list of options each one defined by the risk involved. 

If the leader is risk averse, then the result is likely to be stability if not sterility simply because any successful business decision demands a modicum of calculated risk. 

In general the higher the risk the greater the likelihood of enhanced reward so the level of risk needs to be carefully calculated.  It needs a decision as to the result required so that the response and risk elements can be determined. 

I am not convinced that many leaders actually undertake a formal assessment of the risk options; rather they tend to use gut feel as to the best option. 

How do we determine risk, then?  In general the financial aspects become paramount but the effects on the people in the business also need to be assessed. 

I recall an interesting technique called the Decision Tree which went like this.  The event is defined and the options, as the leader sees them, listed in a horizontal line below. 

Each option is them analysed as to what is needed to achieve a successful outcome with a final estimate of the potential revenue as well as the time and costs involved.  From those results it is then possible to make a cultured decision as to the best option and hence the risk involved. 

What I am saying is that leaders need to make decisions not only based on gut feel but also on a sensible assessment of the risks and the desired results. 

Perhaps the equation should be restated as: 

·       E + R1 +R2 = O  

where E = the event, R1 = the risk involved, R2 = the response and O = the desired outcome.   

The problem is that I don’t know where to buy the wristbands.
 
 
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