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My dad was a WWII concentration camp survivor.
He survived because he fled in his mid-teens, only to be captured later, but under less harsh conditions than his family. They died. He had a rough start in life. Early on, I decided my biggest risk in life was to live without taking full advantage of my life and my opportunities.
Because I started contemplating risk so early on, it is ironic that I find myself in an industry where risk is at the center of every decision. Supply chain management is fraught with risk, as inventories have become lean, compliance management has grown more complex, globalization is mandatory, and customer expectations keep increasing.
For years, everyone felt that the very worst supply chain risk was poor product quality or a disruption to production and delivery. If there was a part shortage, a natural disaster, or a transportation strike, sales opportunities could be lost. While preventing a disruption is hard enough, we have come to realize that other risks may be greater. Supply chain actions now impact the brand directly, and for many corporations, the brand is simply the number one asset. Chipotle’s stock plummeted because of supply chain food safety issues. Unsafe labor conditions, dishonesty, bribery, slavery, child labor and a multitude of other issues have the potential of impacting shareholder value and even put large corporations on the brink of extinction.
Brand risk is huge. Consumers expect corporations to be good corporate citizens, give back to the community, be fair, and be vigilant in ensuring their suppliers adhere to the same principles. Today’s wild card is the contribution of social media to instantly disseminate any issue. This juxtaposition creates wonderful transparency, but also immediate exposure and increased risk.
Also read: Can Brands Be Profitable on Social Media?
Business leaders need to be conscious about risk management both in business and for their career actions. Everyone must include proactive elements as well as reactive elements in their risk strategy.
Always consider the opportunity cost of risk-centric behavior
If you are too focused on risk, you may stall critical decisions, weighing and postponing endlessly. This will cost business and career opportunities as you are seen as ineffective and indecisive. Your company will miss out on opportunities, your kids will feel uncertain, and the marriage proposal may expire while you contemplate pros and cons.
Have a proactive risk mitigation strategy in business and life
Identify the biggest risks. Figure out which are deal-killers and which are marginal. For each risk, assess the likelihood. Consider using a simple scale of 1-5 with a column for impact, and another for likelihood. Focus on items with extremely high risk and also with medium risk and high likelihood. Find a way to eliminate or mitigate the risk. Decide how to monitor the risk and be ready to react if you see the risk level change. A low impact, high likelihood scenario could be if your babysitter gets sick. You would have a backup plan. A high impact but less likely scenario is being in an automobile accident with your child in the car. You mitigate by buying a safe car, install a top-rated child seat, and drive carefully. Use the same methodology for business problems.
Supplement with a reactive risk mitigation plan
Because it is impossible to identify and deal with all possible risks up-front, having a reactive response plan to address unexpected situations may be a great help. For instance, if your company all of a sudden gets a reputation problem on social media, do you have a plan in place?
Ask yourself what you really need to worry about
Most risks never come to fruition. We spend much of our lives worrying about issues that never happen. Divide risks into three categories: Eliminate, mitigate and tolerate—where tolerate means that you will deal with it should it arise.
Also read: The Calculated Risk Question
Humans are created to be risk averse. We over-estimate risk because it was an effective survival tool for our ancestors. Are we over-conditioned to play it safe? Too much fear destroys careers, businesses and ultimately lives. It is healthy to ask “What would I do if I knew I could not fail?” The answer makes you think bigger. Then ask yourself “What’s the worst that could happen if I fail? And how can I mitigate the risk?”
Are women more conservative with risk? Probably yes, and justifiably so. Studies show that women are judged more harshly when making mistakes. Compensate by building a support network of like-minded executives. I am a member of The Committee of 200 (C200), a group of executive women who support each other and work together to advance other women in business. Having an excellent support network and a sounding board can help you deal with risk and uncertainty.
Risk is like taming lions. You need to have a healthy amount of respect for the danger. But if you let the danger overwhelm you, you have just triggered the biggest risk of them all.