How Foursquare Can Save You from Business Disasters

The simple four square layout can be a powerful decision-making tool. It can help you analyze a problem in two different dimensions to hone in on what is most important. The hardest thing about risk management isn’t spending time dreaming up what can go wrong. The hardest part of risk management is determining what risks need to be addressed and in what priority.

Risk = Impact x Likelihood. The higher the impact and the higher the likelihood, the more risk you have. Quantifying impact and likely can be difficult and expensive if you try to do so with excessive precision. A matrix like the below can help you roughly rank your risks relative to each other in terms of likelihood and impact. Once you have ranked your risks relative to each other, you can focus in on the High Impact / High Likelihood risks. Items in the Low Impact/Low Likelihood column do not deserve much attention. You may need to focus some attention on those high impact but low likelihood events and monitor the low impact / high likelihood events.

Road Trip Risks

The matrix above of potential adverse events plotted against the axes of risk for a road trip. While we could spend many hours applying actuarial science to calculating probabilities and impacts of each of the consequences in the matrix, we can simply use the relative estimated positions in the chart to quickly focus on what potential consequences merit planning out mitigations. In the High/High quadrant we have “Traffic jam on I-95” that we may mitigate by leaving early. You could also generate ideas for mitigating the risk of being stopped for speeding such as avoiding the urge to engage “crazy mode” in your vehicle. Having your car stolen during a road trip would be a very high impact but low likelihood event. Since it’s low likely, incurring the expense of buying a second backup car that someone else follows you around with would likely cost much more than the mathematical expectation of losing the car. But since it’s high impact, you might choose to transfer the risk to an insurance company and have a plan to use a rental car if needed.

You could also invert this concept to map out various opportunities and rank each on their probability of success and positive impact. 

This exercise can be done individually or in a group. In a group setting, I recommend having everyone write down events on sticky notes. Mark off the grid with painter's tape on the wall. Have each person place their notes in the matrix. After all the notes are placed, go around to each person to ask if they think any changes should be made and continue round robin rounds until the matrix is stable.