Some years ago, a number of department heads asked for my help.
Part of the organization was strongly considering engaging with a new agent to sell our gasoline and related products in Central and Southern America. The potential for enhanced revenue was considered high, as the Mexican agent had extensive contacts in the region. In addition, there were tax and tariff advantages (at that time).
But the department heads who approached me were concerned about the potential for harm (which we called risk).
For example, there was a high degree of concern about the integrity of the agent. There were stories that the agent stole funds from his principals. While these were unproven, the legal department (in particular) was worried.
There were also concerns about compliance by the agent with not only US laws, but those in the neighboring countries. Reputation risk was a potential issue.
They sought my help because the people supporting the initiative had the ear of senior management and the department heads did not believe management was open to hearing their concerns.
Each group had considered the potential effects of a decision to sell products through this agent. Each had a bias: one towards the opportunity and the other to the potential for harm.
Both had assessed the magnitude and likelihood of the potential consequences, but each had focused on different consequences. One had focused on the reward with little regard to the potential for harm, while the other had done the opposite.
I asked everybody to meet and discuss the proposal. One of my direct reports led what we might consider a risk workshop, although we just talked about it as a facilitated discussion.
Each group was surprised by the other’s concerns. They thought that they understood the other side, but found out that their understanding was skin deep.
When they considered all the potential consequences, both the upsides and downsides, they were able to make an informed and intelligent decision as a management team. (It doesn’t matter for our discussion which way they went, but they decided not to proceed for the moment while they explored ways to minimize the downside without jeopardizing the upside. Eventually, they decided not to move forward.)
There are a few points I want to emphasize:
- Risk (harms) and opportunity (rewards) are NOT two sides of the same coin. It’s not one or the other, it’s more often than not the case that both exist.
- An informed and intelligent decision considers all the things that might happen. On balance, should we do this, that, something else, or nothing?
- The practitioner can assist in a number of ways, including helping management use comparable methods and tools to assess both upside and downside potential consequences in a way that they can be compared.
- The practitioner can add immense value by being an independent and objective facilitator of discussions like the one above.
- If the practitioner only focuses on harms, he or she is not only looking at part of the picture but may actually be distorting the view available to management!
Does this scenario resonate with you? Have you had similar experiences?
I welcome your thoughts.