This should come as no surprise. All companies face risks. I think we’d be hard-pressed to find a business operation that has not encountered uncertainty in any of its activities.
I think it’s very natural to associate uncertainty as a bad thing. But the truth of the matter is, not all risks are bad. There are risks that pose threats, and there are others that present opportunities. Risks can sometimes be visualised as two sides of the same coin, having a downside but having an upside as well.
Risks are an everyday occurrence that come with varying degree of effect and chance. We look at impact and likelihood to determine how to treat such risks. The TARA framework comes into play. TARA stands for Transfer, Avoid, Reduce and Accept.
Below is a basic example on how to look at the TARA framework on a simple situation. Imagine that there is risk of rain as you plan to go out and visit your friend tonight.
Low likelihood, high impact: Transfer the risk. If there is a small chance of heavy rain, you ask your friend to visit you instead. Be careful though, as I’m not sure if there will still be a friendship after the heavy rain 🙂
High likelihood, high impact: Avoid the risk. If there is a high chance of heavy rain, you and your friend decide to stay home.
High likelihood, low impact: Reduce the risk. If there is a high chance of little rain, you and your friend bring an umbrella.
Low likelihood, low impact: Accept the risk. If there is a small chance of little rain, you and your friend go out and risk it.