Managing Risk

[Norm_Cabana]

In many of the classes I've taken, especially dealing with project management, and in many of the business books I've read, the subject of risk management always seems to come up. Unfortunately, I've never seen any good examples of how to manage risk. I often ask questions that attempt to incite my readers to think, but this is one time when I really don't have a clue. How DO you manage risk? Is there some formula you use?

[Chris_Lax]

What type of risk are you refering to?
Health and safety issues ie. risk assessments, or do you mean managing financial risk?

[DougAxford]

In my business Norm, managing risk is having multiple back-ups for everything.

Cameras, data, equipment are easy, but back-ups for staff, back-ups when your key accounts go elsewhere or go under, back-ups when an industry segment changes, back-up when you are hospitalized. Like data, having one back-up is sometimes not enough.

One of the strange, but true virtues of most successful photographers is that they are independent and resourceful - enough to counteract the lack of business savvy and stubbornness. It's which way the fine line falls that seems to determine success.

Risk management is a product of careful planning for all eventualities. That being said, please don't infer that I'm any better than the rest of you, but at least I've thought about it.

It seems that many of the readers here have photography as a part-time job. Having no other source of income other than your camera makes life much more interesting. Experience has taught me that I am better off not taking any account for granted, ever.

Doug

[DouglasUrner]

In this context, managing risk is taking the time to think about what Murphy's Law means in your business and to the particular project at hand. Then you make plans to mitigate the risk.

In some corners of the business world, this is the realm of the SWOT analysis. SWOT is an acronym for:

Strengths - why is my work exceptional? why do people come to me?
Weaknesses - what are my failings? how to do things usually go wrong?
Opportunities - what are the upsides? how will the project grow my business?
Threats - what are the downsides? who's waiting in the wings?

For example, let's say I do weddings. Mostly small relatively low budget events. I do nice work and people say nice things about working with me. Along comes the owner of the biggest business in town and wants me to shoot his only daughter's wedding to another shining light of society. We talk, they like me, I like them, they seem willing to pay a good fee for the job.

So lets take a look at this. What are the potential risks?

- equipment failure
- sickness
- underestimating the scope of the project
- a bad business model (i.e. counting on post-wedding print sales)
- competition from other photographers
- over committing to this project

The list could be expanded, but it will do for a start. It is way better to do the analysis, than to do it perfectly . . .

With the list in hand start thinking about how to manage each of the risks:

Equipment failure: test, checklists, have spares, practice with the spares

Sickness: plan for extra assistants, maybe even budget for one more than you
expect to use and for a couple on call, keep a list of colleagues who can cover for you, make sure your insurance will cover "failure to perform" or whatever they call it, get plenty of sleep . . .

Underestimating: talk it through with the clients, look at what other pros
charge for similar events, add a buffer, talk to other pros

Bad business model: change it! consider what your business model assumes and double check that the assumptions apply in this case -- what if the weather turns bad and the photos are ugly? what if everybody there has a better camera than you do? what if somebody is there shooting hi-def video? would it make more sense to charge a "full package fee" so that you don't need print sales to make the job pay?

Competition: what will your high-end competition do when word gets out that you've got this gig? make sure you've got a cancellation fee in your contract? keep thinking about why they came to you and building on those strengths, be prepared to win the job again after the client has had a health dose of FUD (fear, uncertainty and doubt) delivered by your competition.

Over committing: aka opportunity cost -- what will you loose by taking this job? if it eats as much time as three weddings, does it pay as much? will you have to turn down other work? who will take it? can you manage that? send your star assistant?

Basically, the way I approach it is to keep a "soft focus" so that I'm aware of what is happening around the edges of the project. It is easy to get sucked into wanting to do a new project so that you forget to look critically at it and consider all of the angles. Risk management attempts to develop a discipline of being aware of the potential pitfalls of doing a project (or of not doing it) and then planning for them.

We all practice risk management all the time. You do it when you print large so that your images are hard to steal. You do it when you read marketing books and think about why people buy your images. You do it when you look at the gas gauge when you pass that "last gas for 100 miles" sign.

The trick is to maintain a focus on the whole project so that you can see and weigh the potential benefits and downsides and make plans to work the project to your advantage.

Doug

[BWBrock]

Excellent summary of photo-related risk, Douglas. <font color="blue">Risk management is simply a planning process you use to measure and assess your risks/opportunities and apply strategies to "manage" your particular risks/opportunities to a level acceptable to you. </font> The "managing" is your plan of action for what you want to happen and whatever actually happens. There are many consulting firms that get paid big bucks to do this kind of work even for small firms. Personally, I use formulas in my non-photo and photo businesses as a basis for risk management when I estimate a project. My "project price estimate" formulas I built myself over several years and are based on past history, current customer demand, current supply status, the competition's pricing/supply status, future hunches (engineering changes/exchanges/cancellations) and the Rate Of Return I want (profit margin) just to name a few. There is always risk whether doing something or NOT doing something.

The wedding example Douglas thoughtfully put together is very good and can be expanded by adding risk inherent with capital expenditures (equipment). In Norm's case, it may be his analysis of investing in new equipment for faster/better printing on-site or newer photo gear to get even better dramatic shots although Norm's photos are already as good as any I've seen. Maybe a risk for Norm's type of work could be expanding, or NOT expanding, into a different market of action-related events where people seek dramatic photos they can use to attract sponsors. Since his current customers do some of that, there are probably more like that, willing to pay top dollar, in a different market.

Some of Norm's risks might be: Will he dilute his outstanding reputation in motorsports if he starts shooting, say, equestrian events? Will the cost to set up at a new, untested venue pay off? If he buys a better/faster printer will the speed/quality pay off by doing better, larger prints in a faster amount of time giving him more profits in less time? There is also risk in NOT doing these things, but that risk may be so low as to have no effect. The <font color="blue">management </font> of the risk is as much the decision you make as it is your follow-through actions once the decision is made.

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