Risky Business
As the CEO of a company, you are tasked with making decisions on issues that will determine the fate of the business. Some of these decisions will be easy, but others will be much more difficult. How do you prioritize which issues to act on?
One thing that all of these issues have in common is Risk. Risk is something that you have to consider for every decision that you make. It is determined by two things: Likelihood and Impact.
How to calculate Risk
Likelihood is the chance that something will happen if no action is taken. Consider that your company is bringing on more inventory than usual and sales efforts have not changed. The likelihood that this will be a problem is high; let's say 5 out of 5.
Impact is the measurement of how the issue will affect the business. In our example, if warehousing is cheap and you know that future inventory will be scarce to procure, the impact would be low to medium. If you have to pay for warehousing and you sell a commodity, the impact will be high. For example's sake, lets say this is a 4 of 5.
If we multiply likelihood of 5 and an Impact of 4, we get a Risk level of 20. Easy Peasy.
How to Prioritize Risks
Now that you've measured your Risk for the given scenario, do the same for each issue your team is currently facing. You can then sort those issues by descending order to see the issues that you should be working on first.
Risk is an inherent part of running a business. You can never completely eliminate it, but you can learn how to manage it. By understanding how Risk works and how to consider it when making decisions, you can put your company in a better position to succeed.