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Always look on the bright side of life

Matthew Leitch has asked some questions on my Risk workshops post which I think are aimed at my use of terminology and, specifically, the treatment of good things which could happen.  This seemed to be worth its own Wandering.

The term I’d prefer to use about the clouds of vagueness wreathing the ways things will work out  is uncertainty.  But I find that can create sterile discussions (especially among the uncertainty taxonomists) and that the term risk is what keeps me in business.  I’m happy to admit that I’m pretty relaxed about this – sloppy or cavalier, some might say.  I might also accept that this may lead me into overemphasising the downside in my work, though I’d argue that while I may call it a risk workshop it is intended to capture upside outcomes as well.

Which leads me to one of my pet hates in the ERM business which is the treatment of opportunity as a negative risk.  You may have seen the extended probability-impact diagrams which has a space for negative impacts, coloured blue maybe.  You populate this by somehow assigning probabilities to the opportunities.

In fact you can discern two types of upside outcome.  One is upside uncertainty – inflation may be lower than forecast as well as higher; the weather may be better than allowed for as well as worse.  The other is a decision to do things better, saving time or cost or whatever.  I would reserve the term opportunity for this and it is clear that, defined this way, opportunity is just another risk control measure: an action taken to improve the future.  When you first have the idea there may be some doubt about whether you will implement it or not, but make no mistake, this is analogous to the decision node in decision tree parlance, not an uncertainty node.

So it is important that this type of opportunity is recognised and treated appropriately.  I do in fact have one client whose risk database has a separate table for opportunities and treats them differently.  Specifically, it forces you to identify and control the contingent risks.  This is very good practice.

For some reason I have found that workshops increasingly reveal upsides.  Maybe people are more used to the idea, maybe the world is getting better, maybe I’m getting better at facilitating this.  For the most part these are opportunities as just defined.  But to answer Matthew’s question directly I certainly believe in exploring the whole of the future uncertainty under the rubric of a risk workshop.  I think this is what customers expect.  To make this more disciplined I always start items in the ‘risk’ register (or whatever the record is called)  with ‘The risk that …’, ‘Uncertainty in …’, ‘The opportunity to …’  or (for completeness) ‘The issue that …’.

Of course there is a third type of upside.  The positive event that may or may not happen which may be properly characterised by a probability.  I’m struggling to think of an example, perhaps because I mainly deal in construction work where you generally start with a baseline in which all goes swimmingly.  But you might, for example,  think of the chance of flood which puts a low-lying competitor out of business for a month.  Perhaps I should pay more attention to this.  Maybe that’s an opportunity.

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