In my last post, I talked about the semantic difference (in my view) between “Risk” and “a risk”. In this post, I want to talk about the implications of this distinction.
As you may recall, I said that “Risk” is a concept that relates to general uncertainty about whether or not you can actually accomplish a goal. “A risk”, on the other hand, usually refers to a specific event — something specific that could happen and cause us problems.
When management asks the broad question Do we have too much risk in the organization? what do they mean? Are they asking if there are too many discrete events that could cause problems? Or are they asking if there is too much uncertainty?
Generally speaking, executive leadership would love to have assurance that their strategies will actually achieve their goals. That helps them keep their jobs. They would love to have certainty about every strategy. The opposite side of this coin, obviously, is uncertainty. If certainty is what they want, then uncertainty is often what they want to avoid. Uncertainty causes sleepless nights.
Since “Risk” (or “uncertainty”) is not terribly concrete, it’s very hard to measure. So, we devise a stand-in, or proxy, for this concept. We say that “Risk” exists in a strategy because there are certain discrete events that could occur and cause that strategy to fail. Examples of “a risk” might be “consumers won’t like the new product” or “production costs will push the retail price too high”. These are individual risks — discrete events that could occur. If we have too many of these, and if they have a real likelihood of occurring, then the strategy might be thought of as having too much “Risk”. This means that there is little assurance that the strategy will actually achieve the goal.
So, if there are a lot of “risks” (potential bad events), then there might be too much “Risk” (uncertainty). Right?
The most important point, of course, is to recognize the semantic use of the word “r-i-s-k” to mean two different, albeit related things. When you’re discussing “r-i-s-k” with someone you can help assure a fruitful conversation by recognizing that you may not be coming from the same point of reference. One of you may be talking about “Risk” while the other is talking about “a risk”. Once you recognize this difference and put yourselves on the same page, your conversation will proceed much more smoothly.
What do you think?