How much risk do you have in your racing business?
Chances are that if you’re not identifying, analyzing, or responding to risks in a systematic way, you have no idea!
You need some risk management skills, and you need them now!
Risk management is the term used by business owners when they take control of their risks and stop them from wrecking your races.
Its main purpose is to use a managed approach for minimizing the damage uncontrolled risks can do to you, your business, and your finances.
A risk is defined as something that exposes someone or something valued to danger, harm, or loss.
Some risks can cause damage in the form of time and effort.
However, most risks will come with a financial penalty that will hurt your business (at best), or put you out of business (at worse).
This is why ever race promoter needs to be proactive, not reactive when it comes to risk management.
Your racing business could depend on it.
Introduction to Risk Management
Risk management may sound scary, but it is a capability you can learn.
Ideally, the primary purpose of risk management is to:
- Identifying possible risks
- Reducing or allocating risks
- Providing a rational basis for better decision making in regards to all risks
- Aid in planning
Assessing and managing risks is the best defense you have against Mr. Murphy and race day catastrophes.
By evaluating your contingency plans for potential problems and developing a process to how you will address them, you will improve your chances of having a successful race.
However, just like any capability, it requires continuous monitoring on an annual schedule.
This means that every year you need to:
- Ensure that high priority risks are aggressively managed
- Do cost-effectively management of risks during every race
- Manage the information required to make informed decisions
- Manage each decision you make on issues critical to race success
By going through what you see as risks to your race promotion business, and your races themselves, you can start to take actions that deal with each risk.
Understand the Risk Matrix
Before you make any decisions, you need to problem solve and work through what you actually see as potential risks.
Then you need to assess the likelihood of that risk taking place and the damage that risk can have on your business.
Think of this as your risk potential (probability) and your risk damage (severity).
The following Risk Matrix should give you a good idea of how this approach works:
The X-Axis — Risk Severity — is indicated by low, medium, or high risk.
A risk with a low severity score is a risk that will do little damage to your business, while a risk with a high severity score will to great harm to your business.
The same indications are also used for the Y-Axis — Risk Probability.
Only a low probability score is a risk that very unlikely to happen, while a risk with a high probability score will certainly happen.
When combined, the matrix starts to inform your decision-making process by highlighting those risks that appear in the upper right corner.
Risks with a high severity and high probability area of the matrix (e.g. high-high) are the most important risks to focus on first, while low severity and low probability risks (e.g. low-low) are not a priority.
An example of this kind of high-high risk is racer injuries.
Racers have a high probability of getting injured, but the severity of their injury could vary greatly. depending on the severity of their injury could
Unfortunately, you cannot depend on their injury only being superficial.
The result is a risk that you need to take seriously, even if the most serious of injuries never happen.
Deciding on a Risk Response
What kind of actions can I, or should I take?
That depends on the risk.
Understanding what bad things could possibly happen, and what effect they would have on you if they did beings the process.
Now you need to start considering how best deal with those risks that have become priorities.
When you “deal” with a risk, you are really providing a risk response.
There are four (4) common risk responses you can use:
- Avoidance — Eliminating a specific threat and usually means eliminating the cause
- Limiting — Reducing the expected monetary value of a risk event by reducing the probability of occurrence (sometimes called mitigation)
- Acceptance — Accepting the consequences of the risk by developing a contingency plan to execute should the risk event occur
- Transfer — Having someone else take on the burden of the risk
Each risk will need you to provide a plan for how you will respond to its probability and severity.
Sometimes you can avoid a risk by removing the condition that created the risk in the first place.
An example of this would be changing your race course so that a dangerous terrain feature is no longer an option.
Other times you will limit a risk by preparing for its possibility.
An example of this is having medically trained staff on-hand in the event of an injury.
You cannot stop all injuries, but you can limit the risk of an injury becoming worse by having an emergency response in place to deal with when it happens.
Unfortunately, there are times that you will have to accept a risk.
An example of this is how you have to accept the arrival of bad weather on race day.
If it rains on your race, you obviously can’t change the weather to suit your needs.
You’ll have to accept that risk as yours and handle the cancellations accordingly.
The final risk response is transfer.
When you transfer a risk, you shift a risk from your business to another.
An example of a risk transfer is the purchase of an insurance policy, by which a specified risk of loss is passed from you to your insurer.
Planning your Risk Mitigation
Once you understand how risks work, and how they can be categorized, you can start putting mitigation plans together.
No matter how risked are perceived, your risks and your risk response will always be customized to fit the needs of your racing business.
Creating a plan for dealing with your risk response is called risk mitigation.
Each mitigation plan follows the same risk management process:
- Identify your risks by doing some brainstorming
- Analyze your risks by determining their severity and probability
- Develop risk responses by assessing possible remedies to manage the risk or possibly prevent the risk from occurring
- Develop a mitigation plan as a preventative measures
- Communicate your mitigation plans so you can put in place on a moment’s notice
Take for example the acceptance of the rain cancellation risk.
In accepting the risk of rain, you will take on the communication for telling all your racers that the race has been canceled.
However, after accepting this risk, you could then mitigate the accepted risk by having a rain date and moving the race to another day.
In this example, you take an accepted risk and turn it into a limited risk by mitigating or taking steps to reduce adverse effects.
You could just cancel the race, return everyone’s money, and call it a day.
However, by creating a risk mitigation plan that moves the race to a rain date, you now reduce the number of racers that will want their money back and get another chance to sell your new race day to other races.
Only by going through and determining how you can avoid, mitigate, accept, or transfer each of your risks can you take your first steps towards controlling your own fate.
Putting it all together
One by one, you can use each part of this risk management process to create your own risk mitigation strategy.
No matter how you format you put your strategy in, it should be short, direct, and include only the mitigation plans you need in a crisis.
Putting the strategy together does take some time, but is a critical step in your annual planning.
Fortunately, having real answers to all your risk questions provides you a new level of control over your racing business.
It also communicates to national organizations, park officials, and insurance companies that your business is mature.
This is risk management in a nutshell, and it doesn’t need to be more complicated than this.
But if you don’t actively manage your risks, they will actively manage you!
And now you know.