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The Risk Myth

        posted by , December 11, 2012

Risk is bad and should be minimized … right? The answer isn't what you may expect.

Myth: Risk Should Always be Minimized

Risk is always locked in trade-offs with other factors such as cost, revenue and quality. If you always seek to minimize risk you'll end up with unacceptably high costs, low revenue or low quality.

The goal of risk management is to identify, mitigate, control and monitor risks in support of business goals and objectives.

A company that didn't take any risks couldn't make any money. It couldn't hire employees (hiring employees is risky). It couldn't have customer's (customer's might sue them).

Similarly, a society that seeks to minimize all risk end ups with a frozen economy and culture.

Myth: Risk is Always Bad

It's natural to think of risks as bad. After all, you don't hear people speak of the risk that something good will happen.

Some fields, such as information security, tend to treat risk as always bad.

Other fields such as risk management (e.g. for investments) treat risks as the chance that something unexpected will happen. In other words, they don't consider risk to be good or bad — just unexpected.

If an investment manager predicts a stock will go up 1-2 percent but it goes up 20 percent, that can be considered risk realization.

The definition of risk as potentially positive is still controversial. However, the majority of risk management professionals recognize the positive side of risk. For example, ISO defines risk as the "effect of uncertainty on objectives". This definition leaves open the possibility of positive risk.

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A critical business topic that's widely misunderstood.

What project managers can learn from investment bankers.

A guide to business risk including many examples of risk.

Hype and misinformation incorporated.

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