Risk and Opportunity

By: Philipp Schlumpp
Compliance & Risk Manager
9th July 2024

The relationship between Risk and Opportunity:

In the world of business and personal decision-making, two concepts often go hand-in-hand: risk and opportunity. While these terms are frequently used, their relationship and practical implications are not always fully understood. In this article I will unpack the relationship between Risk and Opportunity, while addressing the question:
Why do we find it easier to identify risks than opportunities?
In today’s dynamic business environment, understanding the intricate relationship between risks and opportunities is crucial for sustained success. The management of risks and opportunities is very similar, while we aim to identify risks, we try to mitigate them as far as possible. This process doesn’t have to be formal. All of us undertake risk assessments all the time, even if only subconsciously. For example, before we embark on a long hike, we might consider that there are threats which might prevent us from reaching our goal. These could be weather changes (high likelihood), running out of food (medium likelihood) or getting lost (low likelihood). To ensure we mitigate those risks by preventing their occurrence, we might decide to do the following:

  • Monitor weather forecasts and select a day with favourable weather.
  • Making preparations for sudden weather changes.
  • Planning our nutritional needs for the journey, packing some extra supplies and researching potential points for re-supply on the route to my destination.
  • To ensure we won’t get lost we make sure our phones are fully charged and we carry a handheld GPS device.

So how would opportunities fit into this scenario? Naturally I initially struggle to come up with opportunities as easy as I have been able to identify risks associated with the activity. But why is that?

The Human Aspect of Risk Assessment:

Since the beginning of time, humans had to assess their environment, looking for threats and evaluating the risk to their survival. Throughout much of our evolution, wild animals posed significant threats to human survival. However, compared to the entire span of our existence on planet earth, these natural dangers have recently been replaced by modern-day risks that are far removed from those our ancestors faced. For millennia, humans navigated a world where a primary danger came from predators like lions, bears, and other formidable creatures. Survival meant constant vigilance against these natural threats, which were a part of daily life. In today’s world, threats to humans are caused by advances in technology, be it machinery, vehicles, fast paced living, or a combination of all, threats are everywhere. 
The assessment of threats is ingrained in us as humans since the beginning of time, which probably explains why we find it relatively easy to identify risks, be it health and safety risks, organisational risks such as reputational risk, market risk or legal risks.

The correlation between Risk and Opportunity:

Looking back at our hiking example, with all risks mitigated we can now look at what opportunities arise. In this scenario, our goal is to reach the endpoint of our hike safely. Direct opportunities might help us reach our destination quicker or more efficiently. However, we should also consider whether these opportunities align with our initial objectives. The opportunities from hiking might include improving fitness, mental well-being, and environmental awareness, which, while related, are not directly about reaching the endpoint faster. Therefore, it’s important to view the outcomes of our objectives from a broader perspective. Mitigating risks might allow us to seize broader, and different streams of opportunities. Let’s consider the following related opportunities that can be derived from going on a hike:

  • Professional Development: Hiking can serve as a powerful metaphor for professional development. By setting goals for the hike, such as reaching a certain destination, you can reflect on your professional challenges and how to overcome them. This process can help you identify and support your professional development goals.
  • Social Connections: Organizing a hike with colleagues, friends, or family can foster meaningful conversations and shared experiences. This opportunity to bond in a natural setting can strengthen relationships and build a supportive network.
  • Building Resilience: Choosing a challenging route and pushing through the physical and mental demands of the hike can build personal resilience. The sense of accomplishment upon completing a difficult hike can boost your confidence and ability to tackle other life challenges.

By exploring these opportunities, hiking can offer more than just physical benefits; it can enhance professional growth, social interactions, and personal resilience.

On the other side of risk lays great opportunity

The Probability of an Opportunity is depending on Action:

To seize opportunities, we must develop a maximization plan outlining specific action. If we do not put plans into action, the opportunity may not materialise. Taking the hiking example, we won’t be able to build social connections unless we take others along the hike with us.
The plan is critical in enhancing and materialising the opportunity. Without a plan the opportunity takes on a much higher risk of negative outcomes.

Balance of Risk and Opportunity:

The ability to effectively balance risk and opportunity can significantly impact a company’s growth, resilience, and competitive edge in a positive way. While the management of risks and opportunities shares similarities, they require distinct approaches.
Risk professionals must ensure their function doesn’t hinder the organisation’s pursuit of new opportunities. Instead, they should actively contribute to opportunity realization by developing frameworks that not only mitigate risks but also highlight potential upsides.
Simultaneously, risk professionals must be engaged as early as possible in new ventures, such as business acquisitions. This early involvement allows for proactive risk identification and mitigation strategies to be integrated into the planning phase, optimising resource allocation, improving decision-making, and increasing the likelihood of success.

In today’s rapidly moving business landscape, the ability to balance risk and opportunity is crucial. While organisations that master this balance can thrive amidst uncertainty and capitalise on emerging trends, it’s important to recognize that inaction poses a significant threat in itself.

Failing to seize opportunities decisively will severely hinder an organisation’s path to excellence and success. By not maximizing potential through timely and strategic action, there is the risk of stagnation and missed growth – Thus, calculated risk-taking and proactive opportunity pursuit are not just advantageous, they are essential.
On that note, when is the last time you considered your risk appetite?