Risk Management, the Right Way

By John Nita and Luiz Correa, Emerson Process Management You probably haven’t thought much about it, but each of us applies or is affected by a variety of risk-based assessment methods every day. We decide where and how to invest savings for our kid’s college education. A traffic light turns yellow and we decide to brake or accelerate. Our health and life insurance premiums are based on an underwriter’s assessment of the risk our current health and lifestyle pose. Before surgery our doctor explains the risks. TV commercials for any number of medicines identify the benefits and side effects. We diversify our retirement investments to minimize the impact of global events. While each industry has evolved its own risk-based assessment methods, all have a common theme. Identify the potential risk event, quantify the consequences, establish the event likelihood, and when possible take action to mitigate the risk. The benefits associated with risk management is well documented and receiving more and more credibility with each passing day. For example, in 2001 the U.S. Food and Drug Administration (FDA) began encouraging the life science industry to apply risk-based assessments in determining if new processes and/or technologies can be used to safely produce health care products. Or consider that for more than two decades, process industry safety experts have been applying risk-based assessments to determine the appropriate level of protection that a safety-instrumented system (SIS) must achieve. While the rest of the world seems to be relying more and more on risk management, few projects include a formal risk management plan, which is unfortunate because managing risk is what project management is all about. Among the outmoded thinking that prevents using risk-based assessments as part of project management are: Changing such perceptions takes time accompanied by celebrated successful projects. A really good first step