9 Examples of Positive Riskposted by John Spacey, June 27, 2016
Have you ever had too much of a good thing?
We usually think of risk as too much of a bad thing. However, risk can also be too much of a good thing.
When your goal is to hit a target there are two sides to risk: risk and positive risk. There's a risk you won't meet your target. There's also a risk that you'll exceed your target. Exceeding targets isn't always desired.
Positive risk is almost a philosophical thing. It's all in how you look at it. Many people are convinced it doesn't exist. Others think of positive risk as an opportunity.
The entire practice of risk management is focused on controlling potential negative outcomes. However, in the case of positive risks — risk management occasionally deals in opportunity.
Risk is the effect of uncertainty on objectives. The following examples of positive risk are too much of a good thing.
1. Project ManagementA project management team controls the risk that a project will go over budget and the positive risk that the project will be under budget.
Being under budget is a good thing because the company saves money. However, in the context of project management it's considered a planning error. You didn't really save money — the project manager overestimated the project.
In other words, under budget projects are something project managers try to avoid. However, when it happens it's an opportunity to reallocate resources.
2. Mega ProjectsA bridge is constructed to last 100 years. The project management team carefully monitors quality risks (the risk it won't last to the 100 year target).
They also manage the positive risk that the bridge will last too long. If they discover that the bridge will last 1000 years — it was likely over-engineered.
3. AccountingYour accountant points out the positive risk that if your income rises past a certain mark that tax rules will apply that will reduce your net income.
4. Investment BankingMost investment banks run large risk management programs to protect their assets and reputation. They manage the risk that investments will be too aggressive. They also manage the positive risk that investments will be too safe (i.e. investing too conservatively).
5. MarketingA nightclub in a small town is only popular on Fridays and Saturdays. They start a promotional campaign to build Thursday nights by cutting all prices dramatically. The promotion team manages the risk that Thursday nights won't be successful. They also manage the positive risk that Thursdays will be so successful that customers stop showing up on the weekend.
6. CareerAn ambitious manager seeks important responsibilities. She manages the risk that she won't take on enough work to achieve recognition. She also manages the positive risk that the firm with trust her with so many responsibilities that she'll be unable to deliver.
7. Program ManagementA program manager who is managing a portfolio of projects controls the risk they will be delivered late. He also manages the positive risk that they will be delivered early.
8. SustainabilityA small island nation in the South Pacific begins a digital marketing campaign to attract tourists. They want a sustainable number of tourists to add to the local economy.
They also manage the positive risk that the campaign will attract too many tourists. They believe that too many tourists will have a negative impact on the local culture and ecology.
9. Non-SustainabilityA tire is designed to last 60,000 kilometers. Engineers manage the risk the design won't be durable. Unexpectedly, the tire design lasts 1 million kilometers. The company worries that their customers will stop replacing tires so they don't release the product.
Managing Positive RiskRisk management is focused on controlling the chance that something undesirable will happen.
Although positive risks are something you're trying to avoid — they can often be managed as opportunities when they occur.
The tire company that discovers a tire that lasts 1 million kilometers might be able to market the tires at a high price to customers looking for extreme durability.
The island nation that's getting too many tourists can tax hotels. The higher prices will reduce tourist numbers and generate revenue for the country.
When your accountant tells you to reduce your income to avoid tax complications you may be able to reduce your taxable income by donating to charity.
Business Risk Guide |
A guide to business risk including many examples of risk.
Risk is celebrated as the brave and alluring basis for economic progress. But risk has a dark side ...|
A critical business topic that's widely misunderstood.|
Strategies that fail to adapt to these forces are a recipe for disaster.|
The two most important words in the vocabulary of business. |