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Risk Management: Trade-Offs
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Think of a situation in your life when you identified a risk and came up with a plan to manage that risk. Perhaps you purchased car or health insurance or anticipated a potentially costly or harmful situation. How did you decide whether the cost of implementing your plan was fair? Did you ever think that the risk was so slight that the cost and time you would devote to preventing it might not be worthwhile? Organizations, too, weigh the trade-offs among the cost, time, and effort involved in preventing a risk and the potential cost if that risk were allowed to happen. For this Discussion, you will consider an organization where you currently work or one with which you are familiar. Think back to a major issue that occurred at your organization. Remember that all issues were once risks, even if you did not identify it before it occurred.
With these thoughts in mind:
Post your initial response to the following:
- Briefly describing the company/organization.
- Describe the major issue that occurred. (Whether or not the issue was previously identified as a risk, assume that it was for the purpose of this activity.)
- Describe what it would have taken to prevent this risk from occurring, in dollars and time, and compare that to the cost it required, also in dollars and time, of fixing the problem after it occurred.
- Analyze the trade-off of the costs required to prevent the risk from turning into an issue, and compare that to the cost of dealing with the issue once it did occur. Describe the results of your analysis, and define the variables and method that you used in making this determination.
- Describe how one should determine if preventive costs are worth it, given the probability of the occurrence of an undesirable outcome.
- Conclude with identifying why this process is not standard practice at all organizations. What are the obstacles?
Hampton, J. J. (2015). Fundamentals of enterprise risk management: How top companies assess risk, manage exposure, and seize an opportunity. New York, NY: American Management Association.
Project Management Institute. (2017). A Guide to the Project Management Body of Knowledge (PMBOK® Guide). Sixth edition. Newtown Square, PA: Author.