by Igor Buinevici
Is risk always a bad thing? Not necessarily:
Some risks are harmful, but others can actually be beneficial.
Why?
Because they add value and help you better serve your customers.
In 2012, Robert S. Kaplan and Anette Mikes wrote an article for the Harvard Business Review titled “Managing Risks: A New Framework.”
In it, they introduced a helpful framework outlining 3 types of risks:
1. External Risk:
These are risks that come from outside of your control, like climate change, recessions, or pandemics.
To deal with them, you need to prepare for them and have plans in place in case they happen.
2. Preventable Risk:
These are risks that arise from within your organization, like accidents, mistakes, or fraud.
The goal here is to eliminate or prevent them from happening by following procedures, conducting audits, and upholding certain values.
3. Strategic Risk:
These are risks that you take intentionally to improve your strategic returns, such as credit risks, investments in R&D, or choosing a particular location.
You need to carefully manage these risks to reduce their likelihood and impact.
Overall, you want to prepare for external risks, avoid preventable risks, and manage strategic risks carefully.
Of these three types, strategic risk is the most intriguing as it can significantly benefit a company and play a crucial role in its strategy.
This leads to an interesting question:
→ Can we take on MORE risk to improve the performance of an organization?
While it might seem counterintuitive from a risk management standpoint, it's actually quite common.
Taking on risk on behalf of your customers can often add more value for them.
For example:
Offering insurance
Using special payment arrangements
Providing leasing and renting options
Implementing service-based approaches
Let’s discuss a high-level approach to managing risk based on the 3 types:
1. Identify all the risks your organization faces.
2. Categorize them into external, preventable, and strategic risks.
3. Minimize the potential impact of external risks.
4. Reduce the likelihood of preventable risks.
5. Evaluate which strategic risks are worth taking on.
6. Manage both the likelihood and impact of strategic risks.
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