Building a business case - dealing with risk

A common task in putting forward an innovative idea - and helping getting the idea selected - is developing the business case. Requirements for business cases can vary depending on how big an idea is and what the initial steps might be, but a fairly standard component is looking at the issue of risk.

Given that innovation involves change from the status quo, it is only natural that those being asked to approve investigation or implementation of an idea will want to have a good feel for what the risks are, and how they can be managed, mitigated or even avoided.

The Australian National Audit Office's better practice guide Innovation in the Public Sector: Enabling Better Performance, Driving New Directions discussed this issue and recognised the role risk plays in innovation. It notes that "Risk management is a fundamental feature of the innovation process. Risk is measured in terms of a combination of the ‘consequences’ of an event and their ‘likelihood’. Risk is characterised by ‘uncertainty’, in that the ‘consequences’ and/or ‘likelihood’ may not be known. Elimination of risk is generally not a practical goal but risk can be managed and mitigated by various treatments. Good risk management is therefore fundamental to innovation." [1. This quote is not covered by the Creative Commons licence. From Australian National Audit Office 2009, Innovation in the Public Sector: Enabling Better Performance, Driving New Directions, accessed at http://www.anao.gov.au/bpg-innovation/contents.html]

Risk was also discussed in Empowering Change: Fostering Innovation in the Australian Public Service. "It is easier to avoid criticism by not taking risks, particularly as the consequences of risk-taking in the public sector can be severe and can include political damage to the government, public criticism, possible legal consequences, diminished career prospects, and damage to personal reputation." [2. This quote is not covered by the Creative Commons licence. From Management Advisory Committee 2010, Empowering Change: Fostering Innovation in the Australian Public Service, accessed at http://www.apsc.gov.au/mac/empoweringchange.htm]

Given these sorts of factors, it's clear that risk needs to be adequately considered. So how can risk be adequately dealt with in a business case?

One thing I think is helpful is to turn the onus around and consider what the risks are of not introducing an innovation? What are the risks of staying with the status quo? We often think about the risks of doing something, but if you have an idea it means you think there's likely a better way to do something or there's a problem that you are trying to solve. That would tend to imply there's a cost or risk for continuing to do things the same way.

Another approach I find useful is to look at ways that risk can be limited or contained. For instance, in every agency there will be a space that is less risky (e.g. where the consequences of the risk being realised are less). Can the idea be trialled in that context first? Alternatively is there an opportunity where a problem or issue is urgent and normal conventions and practices are insufficient to the task at hand? If so it may be the best time to try a new idea as the risk threshold will be higher. Or can the innovation be done in partnership with others with relevant skills or resources to help manage the risks?

A further useful step is to look at where, if anywhere, the innovation has already been attempted. While it may seem glib, I think nothing helps sell an innovation as much as being able to identify where it has already been done. There's a lot of comfort in being able to see that someone has tried it before (and that the risks were contained).

There's a lot of useful advice in the better practice guide but I'd like to hear from others on practical steps for tackling risk. What are your thoughts on how to approach risk in a business case? Do you have any advice on risk for someone putting together a case for their innovative idea?