One Simple Question to Manage Risk

by Mar 10, 2015Business, Decision Making, Delegation, Entrepreneur, Leadership, Strategy

One of the most important jobs any leader does is decide what issues to tackle inside the organization at any given time. But how do you choose which ones are the most critical? Risk is a major component in deciding what comes first.

Consider the analogy of a naval captain. When you’re in charge of a ship, you deal with all kinds of unexpected issues that come your way on the water–everything from fires in the engine room and giant waves to enemy ships and submerged reefs.

Inevitably, every ship suffers some kind of damage in its journeys. One technique ship captains use to determine how critical an issue might be is to ask whether the damage is above or below the water line. That’s how they’ll know how risky the issue is.

The Question: Above the Waterline or Below?

If something goes wrong above the waterline, say something happens to the winch or a toaster exploded in the mess room–things that don’t put the ship at risk of sinking–then the captain knows its not a critical issue. It’s something that can wait to be dealt with or even something he can delegate to one of his subordinates to correct.

But if any issue is below the waterline, meaning there is an issue that threatens the seaworthiness of the craft and the life of the crew, then it’s time to sound the all-hands-on-deck alert as a way to rally everyone toward fixing that issue as quickly and as effectively as possible. Water is coming into the ship and if it isn’t stopped–you are heading to the bottom.

Now think about how you might apply this analogy to your business. Think of an issue facing your business and imagine the worst possible scenario. Everything goes wrong. In this horrible set of events, would you materially damage the business or worse, go out of business? This is a below the water line issue and needs to be resolved immediately.

You could find that you might be unnecessarily spending your time and your company’s resources on issues that might be best described as above the water line when you should really be worrying about what’s happening below it?

If one of your employees is complaining that someone took their sandwich out of the kitchen, is it really worth taking your time to send out a company-wide APB to find out the culprit? Nope–that’s an above the water line kind of issue and you don’t need to get involved. Ignore it, delegate it and move on.

Conversely, let’s say you find out that the client who represents 80% of your revenue is at risk of cancelling their contract. That’s a perfect example of a below the water line kind of issue. It’s time to use an all-company alert get everyone involved in fixing that problem before the ship–your business–sinks.

In these kinds of scenarios, it’s not enough to delegate the task to your team. You need to get involved in at least supervising your superstars who you call in to plug the holes. Speed and accuracy matter, so your input is critical.

This same logic applies to how quickly you need to respond to issues confronting the organization. Use it as a first screen to assess your needed response time.

In some cases, where an issue is above the water line, you can afford to wait a bit before engaging with it. It’s not a priority. But when you come across anything that rates as below the water line, that means you need to act NOW.

Again, this is a simple analogy that is actually quite effective at helping you and your organization prioritize the issues you need to deal with on a daily basis. After all, everyone’s goal should be to keep the company ship afloat. And, as any ship captain would tell you, the best way to do that is to make sure you deal with anything below the water line first.