If you have followed this blog you know I have created a unique and highly effective method of managing risk. I call it “systems-based risk management” or “systematic risk management” because it uses a systems approach that enables you to combine all facets of risk into a graphic format that visually ranks risk priorities.
This video explains systems-based risk management and what it can do for you.
Four frequently asked questions often emerge for people considering systems-based risk management. Here are the questions, followed by my answers:
1. Does this really work or is it just theory?
Systems-based risk management has been applied many times in varied settings. The central ranking technique in this book is called a “Risk Totem Pole”—indicating that important risks are up at the head and lesser ones down at the foot. This Risk Totem Pole concept was created to assure that all the risks associated with putting astronauts into orbit around the earth were identified, evaluated for their significance, and brought under sufficient control to complete the mission.
From such an auspicious start in the space program, the Risk Totem Pole concept was soon applied in many earth- bound settings—even in those beneath the earth, such as the design of the subway system in the nation’s capital. Other widely different applications of the Risk Totem Pole method for managing risk have occurred in areas such as medical centers, international terrorism control, grain elevator explosion prevention, offshore drilling for oil, insurance loss control, coal mining, and criminal justice. There is really no sphere of human endeavor where this technique would be inappropriate.
2. Does this apply to a company or organization the size of mine?
The Risk Totem Pole concept is not confined to large- scale uses. It works equally well in small businesses and in retail outlets whose products may be common and ordinary. The Risk Totem Pole has even been used by a small agency to place in priority a variety of tasks whose relative contribution to preventing losses could not be resolved through discussion among employees. Because its simplicity is recognized by all who have applied it, business executives, staff administrators, and even first-line supervisors feel at ease using it.
3. Can we afford the control of our risks?
The most startling aspect of our approach is the open admission that all risks should not be controlled. There is a myth that says, “If you find a risk, you are obliged to do something about it.” This is foolish thinking. And we are not saying that because we are unable to think of ways to control risks. On the contrary, there are risks that we already know how to eliminate that we still say you should ignore. Why? Because we live in an economic world. With always limited resources, it does not make sense to try to fix every situation where risk exists.
You need to know when to stop spending money to curb your risks. The key word is optimum control of risks rather than total or maximum control. This means trading or juggling cost against performance against schedule until the best compromise is achieved. This is nothing new for decision makers, who do it all the time—in manufacturing, purchasing, engineering, design, and marketing. The good news is that those people with the title “risk manager” can join the rest of the management world.
4. Do I have to become an expert in some kind of technique?
No. We help you think through risks as a manager. First, we provide an easy yet profound way to identify risks. It is not sufficient to know what risks are lurking out there, so we furnish a tested and straightforward method to evaluate the identified risks. Evaluation may sound mathematical or complicated to you. Rest assured that the method is simple and does not even use numbers. Having evaluated your risks and placed them into a ranked order—the Risk Totem Pole—you will be in an excellent position to control the important risks. This method to rank risks sets us apart from others.
The bottom line is this: Using this systems approach, you can rationally begin to trade benefit against risk—and feel morally free. No longer will you have the haunting suspicion that you have overlooked a major risk, one that could come back and bankrupt your business. Whether the decisions you must make concerning risk are in a small proprietorship or in a multinational conglomerate, you will have a solid framework upon which to base those decisions.
This blog post includes excerpts from Vernon L. Grose's book, Managing Risk. Click cover for more information.