Risky Business

Deloitte and RSA presented a collection of seven articles on risk, covering topics ranging from general business risk to IT specific risks. 

As I read the articles, the definition of risk that I learned way back in a risk management class kept coming to mind.  Definition: a risk is a potential future event that has a probability and an impact.   The probability describes the likelihood that the future event will occur.  The impact is either the positive or negative result if the event occurs.

The reason that the definition kept coming to mind is that many of articles seemed to miss some aspect of weighing the probability and impact of a risk as the first step in determining how to respond to the risk.

Several of the articles talk about the need to mitigate risk, and how to accomplish it, as though needing to mitigate the risk is a foregone conclusion.  The only forgone conclusion of what should be done when a risk is identified, is to formulate a risk response strategy.  One risk response strategy, when the impact of the risk is negative, is to mitigate the risk by lessening the likelihood of the event occurring, or limiting the negative impact that occurs.  If the risk results in a positive impact, the strategy can be to increase the likelihood that the risk will occur.

Another risk response strategy is to simply accept the risk and not attempt to mitigate it.  The cost of mitigating the risk may be excessive based on the likelihood that the risk event will occur and what the negative impact of the risk is.

For example, I’m aware of a major farm equipment manufacturer that did not have a backup IT disaster recovery site in the late 90s.  Their risk analysis at that point in time told them it was too expensive to maintain a backup disaster recovery site based on the likelihood that their primary data center would be completely unavailable for an extended period of time.  And if something occurred that took their data center offline for an extended period of time, it was likely that their manufacturing plants would also be impacted in a similar way, removing the immediate need for an operational data center to support them.  This company’s Data Center Availability Risk Response Strategy was to accept the risk, not to mitigate it.   The point is that risks need to be carefully evaluated and an appropriate risk response strategy formulated.  There is not a one size fits all answer to risks and how to deal with them.

How do you handle risk analysis and formulating your risk response strategies?

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