You don’t have to be a risk management and insurance (RMI) or actuarial science major to realize that the “business of risk” — understanding it, predicting it and estimating its costs, including the level of risk that’s acceptable to achieve your goals — surrounds us these days. Why not use the same framework for managing risk and uncertainty in our everyday lives that Fortune 500 businesses use? It’s called “the risk management process,” and many of us may already be excelling at risk management without realizing it! The risk management process includes these steps:
- Identify risks
Select an area of focus (a particular class, your studies, campus life, your part-time job). Identify the risks associated with each (remain mindful that risks can have both downsides and upsides).
- Measure and analyze risks
What’s your “cost” of risk? What’s the risk of achieving a good grade on a quiz (or not) versus chilling on social media, grabbing a slice with friends to recharge or watching a basketball game? Both can have their time and place. It’s all about the risk analysis.
What’s the likelihood (frequency) and impact (severity) of your risks? For instance, the chances of achieving good grades consistently without putting in the time required to study and complete assignments are low. And the impact is severe.
- Select the appropriate techniques to treat the risks
Techniques to treat risks in your life (or in a Fortune 500 company) are fairly basic, but can be powerful in the results they yield:
- Avoid: don’t engage in the activity.
- Prevent: keep the frequency of risk low.
- Reduce: keep the severity of risk low.
- Duplicate: have backups!
- Separate: literally, “don’t put all your eggs in one basket.”
- Implement, monitor and revise
“Just DO it!” Get buy-in and support where you need it (and make sure your friends know your prime study times). Stay agile! Are you achieving the results you set for yourself in your risk management plan? If not, revise it! Don’t stay committed to a plan that’s outdated or ineffective. YOU are your own life’s risk manager!
Mary Ann Cook, Ed.D., MBA, is an adjunct professor of finance and the executive director of the Maguire Academy of Insurance and Risk Management.
