Risk Analysis and You

What is Risk Analysis?

Risk analysis is an important concept in business and project management. Corporations launching capital and labor intensive projects need to assess what the likeliest risks are and to plan accordingly for those contingencies. Good risk analysis considers not only the likeliest, but the worst and the best case scenarios. Having a disaster plan is a good idea but even more crucial to good project management is implementing positive measures to increase the likelihood that the most favourable outcomes will occur.

Everyday Risk AnalysisCredit: Marlene W.

Risk Analysis and You

Even if you aren't a businessperson managing multi-million dollar budgets, the concept of risk analysis is probably familiar to you. You likely perform risk analysis all the time, when planning a holiday, choosing a career or planning for your future.

A person planning an overnight camping trip, for example, imagines and prepares for the worst case scenario (rain? bears? car trouble?) the likeliest scenario (mixed weather, some mosquitos) and the best case scenario (beautiful weather all weekend, great times with loved ones.) He makes sure to have a rain jacket, to take some bear precautions, to bring his Auto Club card and cell phone, to pack some clothes for hot weather, some for cool, bug spray, his camera, a book, hiking boots and a cooler full of his favourite things to share.

If you suffer from anxiety, you might not be effective at planning a camping trip. You might, rather, give the whole thing a skip because the only outcomes you can imagine are lethal or, at best, very uncomfortable. In the case of camping, skewed risk analysis isn't such a big deal: nobody really needs to travel into the wilderness to make smores. If anxiety permeates all your decisions, however, you won't make good choices emotionally, financially, socially, and otherwise.

How Anxiety Affects Risk Analysis

Anxiety is very much like fear but there's one crucial difference: fear is a healthy response to real risks but anxiety is an elevated fear of perceived, not real danger. People who suffer from anxiety commonly suffer from catastrophic thinking: they can imagine nothing but disaster occurring, and they lose site of the best and the likeliest outcomes.

WORSTCredit: Marlene W.

Having a plan in case of disaster is a good idea. If anxiety prevents us from planning for the likeliest and best case scenarios, however, we suffer.

It is easy to see how being overly optimistic is a bad idea: sometimes you really should have that mole checked out instead of convincing yourself it's nothing, and a smart investor does not put all her eggs in one basket. If you are unable to imagine the best case scenarios happening to you, however, you can't take affirmative measures to make good outcomes more likely. Fixating on worst case scenarios can actually prevent positive things from happening to you.

Picture a lemonade stand that's set up to deal with the worst case scenarios only: it has a well-stocked first aid kit and a security system in place so that armed help is available at the touch of a button. Let's imagine that the worst does not happen to that lemonade stand. Let's imagine that only likely and good things happen. Customers are slack in the morning and then pick up in the mid-afternoon heat until a thirsty walking tour of 40 ambles by. If the lemonade stand is prepared for rejection and attack, but not well-stocked with glasses, lemonade, and change, it won't be able to handle all the thirsty customers. They'll have to move on.

A good model of risk analysis works on any scale, from a lemonade stand to a multi-million dollar business. Should a multi-million dollar business adopt your risk analysis model? Why or why not?

If your risk analysis model focuses too heavily on catastrophe, you may be setting yourself up for failure. You deserve better. Your life is worth more than the balance sheets of a lemonade stand or a huge company.

Oh no, I suffer from catastrophic thinking! I'm doomed!

The antidote for anxiety is not judging yourself harshly for it. Mindfulness, not judgement is key. Being aware of how anxiety functions in your life can help you loosen its grip on you.

Be mindful of how you deploy risk analysis in your own life. Are you preparing yourself for success financially and in your relationships? Is there room for personal happiness and success in your long term plans and in your every day?