This afternoon brought a really weird coincidence.
In yesterday's blog post I was sharing my thoughts about risk being a subjective thing - like love - in the eye of the beholder.
This afternoon I was working on a piece of work research for a client about how to determine risk capacity, i.e. the amount of risk, or variation from plan to express it another way, that can be borne (or afforded if thinking in financial terms). With a relevant document on my screen, I received a call from a colleague who works for one of the big four consultancies in their risk practice - he wanted to ask me about determining risk capacity!
As this became the subject of the afternoon I thought I'd continue my risk theme and share some stuff.
So - although risk is a subjective, socially constructed thing - risk capacity should be rational and objective.
The amount of money I'd need to continue to support my family if I was ill can be calculated - whether I chance not having savings or insurance to cover this is a risk that I take based on my subjective assessment of the likelihood of me being ill, and the severity/length of that illness.
The value destroyed if my project doesn't deliver at the planned time can be objectively calculated - whether I chance taking the risks that would result in that delay will be subjectively influenced by a whole range of factors - some that I'm aware of, and some that are sub-conscious.
It's a complex subject, which is why in business it's really difficult to build a culture where risk management adds demonstrable value to the bottom-line, but it's possible and one of the key steps to doing that is to be able to determine risk capacity.