Effective risk management is about much more than just preventing the worst from happening. To make the most of risk management, risk functions also need to look at the opportunity risks their organisations are facing, and then come up with strategies to maximise this upside potential.
Here, I’ve distilled three top tips for embedding opportunity risks into your risk management toolkit, taken from a private meeting with a number of our network’s risk leaders (the full write up of which can be found by members in the Intelligence platform).
1. Start slow and build on it
The most important thing to remember is that you have to start somewhere. It is much better to start out with a small idea that you can build on rather than never managing to put pen to paper at all.
Executive buy-in is key to this process, and their feedback should be used to iteratively build on any model you come up with so that it is relevant to them and the role they fulfill within the organisation.
Using real-life examples of success stories where organisations have used opportunity risks to their advantage is a great way of achieving this initial buy-in from senior leaders.
2. Learn from your threats
Just because you are thinking about risk differently doesn’t mean you have to start everything from scratch.
Traditional risk management typically focuses on downside risks, whereas opportunity risks focus on the upside potential of different scenarios. But despite this fundamental difference, traditional methods of risk management are still incredibly powerful when it comes to managing opportunity risks.
Opportunity matrices work in a similar way to traditional risk matrices, and the opportunities included in such matrices can still be defined as being a high or a low opportunity, much in the same way as downside risks.
This has the added benefit of not having to devise a brand new method of reporting, plus the executive team will already be well-versed in the various reports and visualisations you have repurposed for use with your newly identified opportunities.
3. Remember your risk appetite
Just because opportunity risks are all about the upside doesn't mean you don’t need to define a risk appetite statement for these new risks.
Not taking enough upside risk can be just as costly as taking too much downside risk, and appetites need to be defined accordingly.
You can then use these statements in the usual way to ensure that your organisation remains within appetite, and is not deviating away from the pre-defined organisational strategy.
This is an excerpt from a detailed guide on managing opportunity risks at organisations not used to considering risks in a positive way, featured in Risk Leadership Network’s member-only Intelligence platform.