Unveiling the Nuances: Risk vs. Problems in Business

Way back when, I was conducting a risk workshop.

Some participants cited “quality” as a risk. The quality manager was up in arms. “No way! Quality is not a risk!”

Well, yes, “way”! Nobody had accused quality of being a problem. And nobody was saying the quality was poor. Our friend, the quality manager, didn't have a good grasp of the notion of risk. And in fact, he didn’t grasp that others were highlighting the importance of his area of responsibility and expertise.

Risks vs. Immediate Issues

In business parlance, the terms "risk" and "problems" or “issues” are often used interchangeably, leading to confusion. However, understanding the distinctions between these concepts is crucial for effective management and strategic decision-making.

In business, risk is an inherent element that encompasses uncertainty and the potential for adverse outcomes. It involves anticipating potential challenges, assessing their impact, and devising proactive strategies to mitigate or manage them. Unlike a problem, a risk is often a future-oriented concern, an impending threat that may or may not materialize.

Consider a scenario where a company expands its operations to a new market. The inherent uncertainty of market dynamics, regulatory changes, or unforeseen economic shifts constitutes a risk. To address this, a business might conduct thorough market research, develop contingency plans, and implement risk mitigation strategies. In this context, risk is more about foreseeing potential challenges than grappling with an immediate issue.

On the other hand, a problem or issue refers to a challenge that requires immediate attention. These problems are tangible, occurring in real time and demanding swift action. Unlike risks, problems have already manifested, directly impacting the business.

Imagine a manufacturing company facing a supply chain disruption due to unforeseen circumstances. In this case, the challenge is not a speculative risk but a tangible issue affecting production, delivery schedules, and customer satisfaction. Addressing this problem requires immediate identification of the root cause, formulation of short-term solutions, and implementation of corrective measures. In effect, what was a risk, has become a real problem.

The Barn and the Horse: An Analogy for Clarity

I tend to “dial a cliché” (quoting Morrissey, 1988) to mitigate the risk of being misunderstood. So, I cite the proverbial horse and barn.

The expression "once the horse is stolen, it's too late to lock the barn" encapsulates the essence of risk management. The possibility of losing the horse represents a risk while locking the barn illustrates preventive measures. It emphasizes the importance of proactively addressing risks before they become tangible problems.

Consider a cybersecurity breach as the metaphorical stolen horse. By implementing robust security protocols and regular risk assessments, a company can lock the barn beforehand, preventing theft. Once a breach occurs, it becomes a problem, and the damage is already done.

So, let’s call it a balancing act (dial a cliché, or, a metaphor – what’s a meadow for? For that horse that’s gone from the barn).

In the intricate ballet of business, balancing risk management and confronting problems is essential. While risks demand foresight, strategic planning, and preventive measures, addressing issues requires agility, quick decision-making, and effective problem-solving. By understanding and navigating the nuances between risk and problems, businesses open a path toward resilience and sustained success.

Yep. Better check that the barn door is locked. Before your risk becomes a problem.

Get it?

Audit Ed