Simplifying risk management to accelerate value creation.
Whether you like it or not, you’ve got to deal with risks. It doesn’t matter if you’re trying to get a product into the market or create new features. You’ve always got a certain risk level ahead of you.
Dealing with risks has different aspects. Some teams overreact to it and mind every single step. Other teams ignore risks and do what they believe makes the most sense.
Neither ignoring risks nor being fearful will help you create outstanding products.
Finding balance is essential to ensuring progress and remaining open to new things. I’m not a conservative person; I used to ignore risks and focus solely on opportunities. Many times that worked, but when it didn’t, failures were painful. Extremes don’t give you the best chance to create value.
Allow me to share my take on managing risks mindfully. I hope that you will gain insights to apply from today on.
What Are Risks?
Risk management comes from classic project management. A risk is an uncertain event that can potentially occur and damage the project. Understanding risks upfront is important for making informed decisions.
Many Product Managers, including me, dislike the term risk management because it connects to traditional project management. Well, risk management is part of your job as a product professional.
The critical aspect is understanding risk characteristics before jumping into action:
- Impact: If the risk becomes a reality, what would happen? It can be a low impact, which you may accept, or a high impact that you must avoid, or your initiative becomes non viable.
- Probability: This is a tricky aspect. It’s more like a guessing game, but you need to reflect on the probable chance the risk can happen.
Based on these parameters, you can have a simple matrix 2x2, prioritize the identified risks, and decide what to do. Risks with low impact I’d recommend you to ignore. High-impact risks should be either mitigated or avoided. In other words, you better take action.
Dealing with risks can be frustrating, to say the least. Don’t get mad when you notice people being over-cautious with potential risks. It’s in our nature to feel safe and avoid problems.
Let me give you some common examples:
- It’s legal and mandatory: More often than not, someone will throw a legal risk at your plate and push to deal with it immediately. Don’t rush. Treat it like you would everything else. What’s the potential impact and probability? You can decide whether to act or ignore it. Legal risk doesn’t mean stopping whatever you’re doing and dealing with it RIGHT NOW.
- Dealing with all risks: Choosing what to ignore is important. If you miss this conversation, be ready to deal with nonsense. You shouldn’t put your energy fully into risk management. You’ve got to focus on opportunities as well.
- Assuming you know it all: Risks evolve over time. You simply don’t know everything at the beginning. It’s naive to have an exercise about risks and never reflect on it again.
At the beginning of any initiative, your knowledge is close to zero, and risks are high. That means figuring out how to increase the knowledge and reduce the risk is mission critical.
The following graph reflects what I commonly observe about risk and knowledge over any initiative. This might be obvious to you, but I am often shocked by how teams make too many important decisions without enough knowledge.
Simplifying Risk Management
I perceive traditional risk management as limiting to creating value fast enough. That’s why I’ve got a different way of dealing with risks.
The most important thing is accepting that you don’t know enough initially. Worse than that, you don’t know what you don’t know.
I dislike the word risk because of its psychological effects on teams. Unfortunately, most teams play safe whenever they hear the word risks. Still, we cannot ignore them.
A better approach is to focus on assumption testing instead of risk management. Whenever we start solving a problem, we make assumptions and often don’t talk about them. This behavior leads to waste and frustration. Instead, let’s name assumptions and deal with them.
Whenever I start an initiative, I do the following:
- Identify Assumptions: Naming what you assume to happen is vital. If you miss that, issues become unavoidable. I like starting with the end in mind, imagining the product or feature was launched but failed massively. Then I ask, what went wrong? This question helps you uncover your assumptions.
- Categorize Assumptions: Not every assumption is the same. Some may have certain evidence that gives you enough confidence to ignore it; others lack evidence and are business-critical. Use a simple 2x2 matrix to focus on what matters most.
- Run Experiments: Assuming that you lack evidence and are impactful. You need to check them and understand whether you’re right or wrong. Be careful because you may fall into confirmation bias. Strive to prove yourself wrong instead of validating assumptions. The goal is to learn and create an outstanding product. You can only achieve that by remaining curious.
- Decide: As you test your assumptions, you need to make informed decisions based on evidence. You must choose whether to continue, iterate, pivot, or drop. In the beginning, your knowledge is close to zero, but after some experiments, that changes and enables you to make better decisions.
This is a simple method, and I find it more valuable than classic risk management. It will force you to continuously reflect on your current knowledge and incrementally reduce risks by testing your assumptions.
I’m a lazy person. I dislike complex methods and spreadsheets. Simplicity and collaboration are my best allies. I use the Assumption Matrix coined by David Bland, because it’s efficient and valuable. Here’s what it looks like.
“The world is so full of ambiguity and uncertainty that the design attitude of exploring and prototyping multiple possibilities is most likely to lead to a powerful new business model.” ― Alexander Osterwalder
You may wonder, “Should I focus on risk management or assumptions testing?” I’d say go with assumption testing because that will be more collaborative and increase the odds of creating value faster. But that’s up to you.
Regardless of your choice, you must know that 9 out of 10 ideas fail. Your responsibility is to learn how to separate good ideas from bad ones. Here are some questions for you:
- How often do you drop an initiative after starting it?
- When was the last time you removed a feature from your product?
- How many experiments do you run per week?
- How often do you review your assumptions or risks?
Your goal shouldn’t be to minimize risks but to maximize opportunities. Great product managers are value maximizers, not risk minimizers.
I’m not telling you to ignore risks; I’m telling you that when you do your homework correctly, avoiding risks is just a side effect. Here are some principles to help you out:
- Build to learn, then to scale
- Don’t fall in love with solutions, but with problems
- Evidence talks louder than opinion
- Use what you know to reveal what you don’t