Practical differences between end-of-scenario and end-of-period approaches

What to read first: When do the consequences follow from a risk event?

There are two ways to understand when consequences follow from uncertain events, end-of-scenario and end-of period. This table summarises some practical differences in the risk processes that follow from each understanding. The main post ‘When do the consequences follow from a risk event?’ explores the fundamental reasons for preferring the end-of-period view.

Consequences at end-of-scenario

Consequences at end-of-period

A consequence is the incremental change in success level when the risk has unfolded

A consequence is the ultimate level of success or failure

Absolute scale for success

There is usually no scale for the absolute level of success. If there is such a scale or measure, it is not used to rate risks for consequence.

There is an explicit scale for the absolute level of success or failure. The scale does not need numerical measures.

The risk consequence scale represents movements of different sizes, but not positions reached.

There is no separate scale for differences in success levels, isolated from the positions reached.

Choice of times

A risk event can be understood to have fully unfolded at various times after the event, depending on the nature of the event’s effects.

The end-point can be understood as the end of a fixed time (such as a year), the as the time when an objective is achieved or not achieved. That time can be reached at the end of a project, or the end of a microscopic event such as a single transaction.

Units

Consequences are arbitrary units of incremental effect that may or may not indicate differences in the longer-term level of achievement. They do not measure those differences directly.

Consequences are absolute success levels, which can be represented in descriptions or word pictures. Numbers are not usually involved. Numbers may appear within the description if the numerical measure is genuinely important in itself.

Consequences are often measured in numbers, with number ranges grouped into discrete consequence levels.

Scaling is an art rather than a science. The scale must mean something to the decision-maker. For any risk assessment based on period achievements, you can describe endpoint pictures that are outstanding, excellent, planned success, qualified success, partial success, failure, and worst imaginable. The pictures themselves are more important than these labels.

Difficulty of risk assessment

Assessing the consequence of a specified risk event seems easier, because there is a shorter path from event to the assessed consequence.

There is a time gap between the consequence and the achievement of the objective. The effect of the event on period achievements is usually left unexplored and uncertain.

Assessing the consequence of a risk event can be difficult, because the path from event to the period achievement is long and unpredictable. That path connects the risk event to its ‘consequence’ and to the ultimate effect on achievement, with no gap.

Risk effect pathways can be shortened by breaking down success and failure dimensions into local, tactical and operational objectives, with a strategic or enterprise layer of objectives above those. Thematic objectives also support the enterprise layer. The enterprise objectives represent all success and failure dimensions for the organisation.

Types of uncertainty

If a risk is supposed to have its final effect after it unfolds, it is probably a chain of events and conditions. The trigger event will be uncertain, along with many of the further events it might cause.

The end-of-period idea of a risk consequence leads directly to considering all forms of uncertainty. Those forms of uncertainty are not only events that may or may not happen. Assumptions present another common type of uncertainty.

This idea of a ‘risk’ does not lend itself to dealing with other types of uncertainty, such as assumptions that may be wrong from the beginning. A wrong assumption does not occur at a specific time. (It does not help to say that a wrong assumption ‘event’ occurs when the mistake is recognised.)

Risk identification can begin by querying the confidence that the organisation will achieve success in each dimension, then working backward from those doubts.

Transience and recovery

The assessed consequence of a risk is meaningful only if that effect is permanent. Many effects from risk events are temporary.

It would be easy to rate a set-back event on its immediate effects. But many set-backs are recoverable in the longer term. With recovery, the long-term effect on achievements is zero. It can even be positive, if learning follows. The end-of-scenario idea of consequence leaves this dilemma unresolved.

Understanding consequence as the period achievement level always leads to considering possible recovery or escalation from transient events. Recovery and escalation are considered during the assessment of each risk.

Success confidence

Risk management does not estimate the likelihood of organisation success. It does not produce any other forecast of ultimate achievements. Movement from the planned path may be rated, but the position of the planned path is not involved.

If consequences are the ultimate levels of success and failure reached, risk management can give confidence in success at each level. One of the levels is at the end of the planned success path. There is a single overview of forecast performance and risk.

Risk identification can be approached via risk sources, event types, or consequence types. Identification cannot be approached via potential failure positions at the end of the period.

You can identify risks by working backward from all the success and failure levels that have a non-zero likelihood. Individual risks are the reasons why the unplanned levels of success and failure have a non-zero likelihood.


Parent post

When do the consequences follow from a risk event?

The standard view: Consequences follow at the end of the risk scenario Another view: Consequences follow at the end of the planning period Consequence scales in each view Other ways that the view matters Conclusion Question for experts

Index to the topic Risk in work unit business planning

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