Any action that you take involves some degree of risk. Of course, some things are riskier than others. Taking a walk down to the convenience store to buy a frozen burrito is relatively risk free. Going scuba diving with a spear hoping to catch your dinner might be a little more dangerous. Luckily, humans developed fear in order to protect us from most of the risks we were exposed to back in our caveman days. Risk assessment was quick, automatic, and largely unconscious.
But today, things are a bit different. There are plenty of risks around us that don't trigger our fear response. We can be fooled into thinking everything is safe when it's really not. In order to be aware of all the risks that exist today, it helps to take a conscious structured approach. This is especially important when you are making business or investment decisions, and there's a lot of money at stake. To get a good idea of your risks, and how big they are, there are three basic steps.
To get started, you'll need to identify your risks. This simply means to think of anything at all that can go wrong if you take whatever action you are considering. No matter how silly or mundane, write down every possible thing that could negatively affect your outcome. The more you can come up with, the better. Once you've got your lists of risks identified, it's time to move on to the next part.
Now you've got your list, it's time to move on to risk assessment. This is when you make an estimation of the probability that each risk has of occurring, as well as how bad things will be if it does occur. For example, getting a red light on your way to the supermarket (if that's the action you are considering) would have a pretty high probability, but the negative effects would be minimal. Do this for every risk on your list.
The next step is to prioritize your risks. The risks with a fairly high probability of occurring coupled with a fairly negative impact if they do occur would go to the top of your list. Those risks that have a pretty low chance of coming to pass, combined with fairly low negative consequences should go to the bottom of your list. Now you simply start at the top, and take measures that can both decrease their probability of happening, and decrease the impact if they do happen.
Naturally, these three steps are only the beginning of risk assessment and mitigation. In further articles I'll go over ways to mitigate different kinds of risks, and to protect yourself in case they do happen. Once you've identified all your risks, and taken steps to prevent their occurrence, you will have a much greater chance of success in whatever endeavor you are planning.