Imagination precedes reality, Goals precede objectives, Objectives precede action plans, Ideation precedes criticism and a dream, or a wish precedes fulfillment or otherwise!

But what about experience? Isn’t it the best teacher? A colleague from yesteryears once quipped, “experience is what you get when you don’t get what you want”. So, isn’t it enriching and fulfilling? And does it still leave us wanting?

Indeed, it is. And we should prefer to experience firsthand. But experience is not the starting point, it’s just a lesson if reflecting upon someone else’s or a tool if embarking on one. It is pure imagination that is and should always be the starting point. The relationship cannot be more unambiguous than this: experience leads us through the path carved out by imagination.

Now let’s put this in the context of business entities and let’s take strategy for instance. Learning from the experience of others is good but competing businesses cannot afford to limit themselves to what and how others have or have not achieved, let alone copy a strategy! A winning strategy that keeps the entity ahead of the curve is always based on imaginative intuition.

It may as well use experience in tandem with imagination but not necessarily so. Whether it’s a startup or an established brand making new strides, a unique and novel idea-based strategy always secures the first mover advantage. It does run the risk of failure as well but failing is not a greater sin than not dreaming and not trying it out!

Now let’s talk about objectives. It is the objectives that precede risks; the risks do not arise if there aren’t any objectives to strive for! And where do these objectives come from? Goals, Ambitions? Pursuits? Dreams? And do we set a business entity in motion prior to wishing for it?

Certainly not. An entity aims to be in business for a purpose to be fulfilled. That purpose is how it envisions itself to be successful. Thus, it’s the imagination of pursuits that triggers and sets the entity up in motion and that’s when it decides to embark on an experience. At this stage there’s no conscious effort to be weary of risks, what concerns it are the pursuits.

So, what about risk management? Should it be experiential or imaginative or both? The conceptual understanding that I have earned over the years experimenting is that sheer imagination is what should drive the risk management exercise. Yes, you read that right! Experience led me to a concrete understanding that imagination and not experience holds sway in risk management!

Let’s understand it by jotting down the perils of Experiential only Risk Management and perks of Imaginative only Risk Management and see if we could have the best of both the worlds!

Experiential Risk Management

• Copies a standard / typical approach to risk identification, assessment and evaluation, management and reporting, which might not be suited / specific to the entity.
• Limits the use of intellect to established lessons from past experience undermining identification of all risks that apply to the entity resulting in a deficient risk identification exercise.
• The assessment of risks is limited to the myopic understanding of risks, Downside risks, simply because experience suggests that. Such risks that are Downside risks for others might have the potential of becoming opportunities / Upside risks in this case. But these are not considered.
• The evaluation exercise is strictly aligned to heat maps that have not evolved because it has stood the test of time or risks best suited for a subjective assessment / judgmental evaluation are regressed to purely mathematical evaluations.
• Use of tried and tested methods for management of risks with the hope of expecting positive outcomes every time, as if risks do not evolve.
• Not considering the possibility of different management actions and approach that could alter the course of risk action, converting it into an opportunity for growth.
• Not being open to the possibility of risks suggesting review of objectives to alter these allowing foray into uncharted territories.

Imaginative Risk Management

• Questioning the derivation of established / determined objectives and reviewing the process through which these have been arrived at.
• Ascertaining if the objectives need to be revised for optimization within the confines of the entity’s goals, mission and vision.
• Adopt any approach to risk management; top-down (corporate – functions – processes), bottom-up (vice versa), horizontally, etc. solidifying business understanding as you go and identifying areas for improvement.
• Deploying intellectual prowess to identify all possible what could go wrongs during the course of accomplishment of each objective. Be guided by the specific requirements of the entity, its operating environment and its pursuits enabling identification of Upside Risks / Opportunities.
• Assessment of all risks specific to the entity’s tolerance, capacity, thresholds and cost-benefit analyses, even allowing risk assumption to acceptable levels so that some of these could be converted to opportunities.
• Consistently evolving risks rating mechanism commensurate with evolving business needs, trajectory and operating environment changes. A distinct mechanism for evaluating risks requiring subjective / judgmental evaluations.
• Recommending differing management actions for identical risks commensurate with priorities and resources.
• Brainstorming and prioritizing use of technological interventions, process re-engineering, controls redesign, process linkages / integrations, mergers, removal of redundancies as management actions and approach.

Thus, for a bespoke risk management framework, it’s our imagination we need to rely on for the most part. Besides, the experience factor is already taken care of when rating the risks in terms of probabilities!

However, do not just write off the use of experience in risk management framework design as yet! An experienced architect of frameworks will be invaluable in deciding how and where to begin specific to the entity, how to channelize your imagination to your objectives and pursuits, extent of imagination to deploy and guide the process to completion. Yes! Experience would certainly complement imagination when it comes to risk management.

But let risk management be a product of your imagination, not just your experience.

As for businesses looking to recruit risk management talent, don’t simply go for experienced professionals! For risk management go for experienced dreamers!

And remember to be weary of the consulting agencies that sell risk management tools to you and your competitors…. hardly anything imaginative there!