The cost of risk management

by Stuart on 13 October 2010

There's lots of talk about risk management these days.

A lot of it in the voluntary sector is to do with risks to the people we support. In this post I'm talking about risks to the project. What is it that could stop your project, or slow it down, or cause it to fail in some way?

There are 5 ways to mitigate risk, and they all have one thing in common. They will cost you. Anything you do to try to reduce the probability of the risk occurring, or the impact of the risk if it happens, will cost you something in terms of money or time. Here's a practical example.

The other day, someone (and I still haven't got to the bottom of it) left our freezer door ajar, and as a result all the food defrosted. On the plus side, we had an amazing dinner that night, but on the flip side, a lot of food was ruined. This has happened a couple of times before, so I decided to take action to reduce the risk. I looked at all sorts of ideas. My last attempt, a large fluorescent orange label on the door saying "SHUT ME, OR ELSE" clearly wasn't enough. I settled on buying an alarm, a bit like a door burglar alarm that is now set that if the door is open by only a couple of millimetres, the box gives a piercing squeal.

I hope the risk is much reduced, but it cost me £20. The judgement here was "Is it worth £20 now to prevent another load of food being spoiled?" I judged yes.

In real life, the issues are similar. In order to reduce the chance of the risk occurring, you have to spend resource – time or money. The question is "Is it worth the resource up front to mitigate a risk further down the line?"

Only you can answer that question.

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