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Risk Management – Estimating Consequence

Risk Management – Estimating Consequence

Hello and welcome to this session. What I want to talk to you about today is the estimation of consequence in the risk management process. I have seen many organisations who tend towards the worst case in terms of their consequence. The common problem that I am confronted with is someone has a trip or a slip or a fall in the workplace and the organisation will say, “well they could hit their head on the table,” which would mean that they would end up with a really bad injury or in the worst case they could die. Now, the trip slip and fall is the event, by bringing a table into it you have brought a third element into it. If you tend towards the worst case scenario with all of your assessments for consequence what you are actually doing is reducing the credibility of the risk management process and the program in your organisation. Because if you do that, all of your consequences are going to be in that higher level and with a higher level of consequence, regardless of the likelihood, you are still going to end up with a lot of risk in that top right hand corner of your matrix if that’s the sort of matrix that you’re using.

The way that I look at it and the way that you should look at it, is to look at what is the most plausible outcome. What is the most plausible outcome of that particular event occurring? We do that by all of our critical success factors. To give you an illustration, if we had a hundred people that had a trip slip and fall that resulted in an injury – about 90% of those are either going to have an insignificant consequence or a minor consequence. You might have moderate consequence that break a wrist or something that requires hospitalisation, you might have one that is quite major but out of that hundred it is very very unlikely that someone will die i.e. a severe consequence. The most plausible outcome here is somewhere in the minor area. If we look at it and say in most organisations it is almost certain that we are going to have a trip slip or a fall over the next 12 months. Well if we have almost certain and severe in our risk matrix then that actually makes it an extreme risk. So that means that we really have to do something about it.

But what can you do? Short of putting pillows all over the floor or wrapping people in bubble wrap so they don’t get hurt as they fall, it’s not something you can really influence. So what we want to do, and it goes for every critical success factor as I said, is look at what is the most plausible outcome for that event. The way I do it is I look at the event, I look at the critical success factor and ask what is the most plausible outcome of this particular event in relation to that critical success factor. What is the most plausible outcome from a reputation perspective? Or from a compliance or regulatory outcome? Once we have done that, we have a much better understanding of the risk and whether it needs to be treated or not. If we tend towards the worst case on all of our consequences, we are going to treat a whole lot more risks than is necessary, which will effectively consume resources and reduce the credibility of risk management in that organisation and probably render the framework useless.

So, this lesson out of this is asking that question. What is the most plausible consequence against every critical success factor and you will get a much better outcome for your risk management program. That’s all for this session, as always, let’s be careful out there.

Written by Leena Renkauskas

Rod is an accomplished risk consultant with extensive experience in the delivery of professional consultancy services to government, corporate and not-for-profit sectors. Rod takes every opportunity available to ensure his risk management knowledge remains at the ‘cutting edge’ of the discipline. Rod’s Risk Management expertise is highly sought after as is the insight he provides in his risk management training and workshop facilitation. Rod was recognised by the Risk Management Institution of Australia as the 2016 Risk Consultant of the Year and one of the first five Certified Chief Risk Officers in Australasia.