When making important decisions, it is critical to identify and understand the risks for each alternative. Some hear the word “risk” and take that to mean “don’t do it!”. In project management and decision making, we understand that we want to take “calculated risks”, meaning risks where we understand the probability and impact of each risk, as well as how we might mitigate the risks and make contingency plans.

One way to quickly identify risks is to ask yourself and those involved in the decision “What worries me about this alternative?”. Also, “What are the possible undesired outcomes?”. Another way to help identify risks is to use a “Risk Hierarchy Chart” (you can Google this term for examples). These charts identify topics of possible concern and make a good starting point for brainstorming.

You will want to avoid “confirmation bias” (only seeking out information that confirms self-serving assumptions). For example, if there is a particular model car you wish to buy, you avoid reading any negative reviews of the auto. You will bury your “risk identification head” in the sand in you do this.

Another good way to identify risks is to seek out a “devil’s advocate”. We all have a least one friend or family member that sees the dark side of any decision. Although these people seem like negative thinkers, their insights can help you identify and avoid risks you may not have been aware of. If you know someone who has done what you are considering, consult with them and ask them what pitfalls they encountered and how they could be avoided.

Risks can also be found by looking at the big picture as well as the minute details. For example, if you are considering entering the gourmet cupcake business, you can look at the big picture by conducting research on how much competition you have, successes and failures, and current trends. You can look at the details by identifying specific businesses that are like you want yours to be and studying their methods and approach.

Once you have identified your risks, you will want to assign a probability (low, medium, high) and an impact (low, medium, high) to each. For the high probability and/or high impact risk, you mitigate them (prior to the risk occurring) by looking for ways of reducing the probability or impact of the risk. In the cupcake business example, you could keep your day job and start small as a side business. Start by trying to sell to friends, family and co-workers.

Contingency plans are created in case the risk occurs despite your mitigation plans. This is what’s known by many as “Plan B”. Make sure you always have at least one Plan B for every high impact risk.