Risks

By: Gregory Monahan

I have defined ‘‘risk’’ as meaning ‘‘uncertainty,’’ and I have proposed that the presence of risk (uncertainty) is evident in the distribution of possible outcomes. I think it is easy to fall into the trap of spending way too long trying to determine a clear definition of each risk associated with an objective. Take, for example, the case where your objective is to increase total revenues by at least 10% over the next year. You could, quite simply, summarize all of the risks you face as ‘‘the probability that we do not increase total revenues by 10% over the next year.’’ Is that sufficient for application of the SOAR process?

In truth, I have included ‘‘risks’’ in my view of the risk universe only because I thought everyone would expect to see it there and that great numbers of readers would rebel if I did not include it. For the application of the SOAR process, I advocate that risks be stated as in the previous example (i.e., the one about increasing total revenues), for three reasons:

1- By simply defining risk as the probability of not obtaining your objective, you maintain your focus on the fundamental concept of the SOAR methodology: You face a distribution of possible outcomes of varying reward and probability.

2- You do not waste time debating possible (and completely academic) definitions of the risks you face.

3- You have a much higher likelihood of identifying all of the possible influential factors—namely drivers and controls—and this is where your focus should be.