Risk-based thinking refers to thinking ahead of a situation (as in a chess game) to consider threats and opportunities and their possible effects on a specific goal, in order to take the necessary actions that will allow us to maintain or improve the desired results. Risk-based thinking is done by everyone automatically and in most cases, we are not even aware of it.
For an organization, risk-based thinking ensures risk is considered from the beginning and throughout a process, project, plan or any strategic decision. Many consider risk in a negative sense; however, risk-based thinking can also help to identify opportunities, which can be considered to be the positive side of risk. By taking a risk-based thinking approach, an organization becomes proactive rather than purely reactive, preventing or reducing undesired effects and promoting continual improvement.
Organizations need to understand the overall level of risk embedded within their processes and activities. For all types of organizations, there is a need to understand the risks involved when seeking to achieve objectives and attain the desired results. This helps managers decide how they will minimize the effects of undesirable situations and also how to maximize the benefits of any opportunity.
Risk-based thinking therefore:
- Establishes a proactive culture of improvement.
- Assures consistency of quality of goods or services.
- Builds a strong knowledge base.
- Proactively improves operational efficiency and governance.
- Improves management system performance and resilience.
- Improves customer confidence and satisfaction.
- Builds stakeholder confidence in the use of risk techniques.
- Enables organizations to apply management system controls to analyze risk and minimize losses.
- Enables organizations to respond to change effectively and protect their business as they grow.
Mastering risk-based thinking will allow any organization to fully understand their current situation, identify risks and opportunities and effectively manage them. When a risk-based thinking approach is considered throughout an organization the probability of achieving defined objectives increases, and the results are more likely to be consistent and long-lasting. Also, with this approach, customers can be confident that they will receive the expected product or service in the right time and at the right place.