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James Manktelow: Hello, I'm James Manktelow, CEO of MindTools.com, home to hundreds of free, career-boosting tools and resources.
Amy Carlson: And I'm Amy Carlson from Mind Tools.
Almost every decision we make in the business world involves a risk of some kind.
Risk brings together the likelihood of something going wrong, and the negative consequences that will happen if it does.
Sometimes risk is small. Other times, the risk is large, and the consequences of things going wrong can be serious.
This is why weighing the risk before you make a decision is so important. The better you understand your risk and its impact, the more prepared you are to manage it.
JM: Doing a formal, four-step risk analysis is the best way of making sure that your decisions are robust and well-considered.
The first thing you need to do is identify your threats. These threats could come from anywhere.
For instance, what happens if your computer system fails, if a team member is sick, or if a key supplier lets you down?
These are all threats that you would want to write down.
Make sure that you spend enough time on this crucial step to identify what might go wrong.
AC: Once you have a list of threats, you need to assess the likelihood of that threat actually happening.
To do this, estimate the probability of the event occurring, and multiply this by the amount it will cost to set things right. This will give you a value for the risk that you're facing.
Your third step is to manage your risk, and there are several different ways to do this.
Ask yourself, Can I do anything to eliminate the risk? What assets can I use to counter this risk? Can I come up with a contingency plan to minimize the effects if the event happens?
JM: Once you've carried out your risk analysis and worked out how you'll manage your risks, you'll want to carry out regular reviews.
This could mean going over your risk analysis from time to time to make sure that nothing has changed.
Or it could mean testing your systems and plans appropriately.
AC: Doing a formal risk analysis when you have to make a big decision is useful because it helps you analyze the risks you might be facing, and come up with contingency plans to manage them.
You can find out more about risk analysis in the article that accompanies this video.
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