For decision making, “reactive” tends to be frowned upon in the business world. “Proactive” is the preferred mode and has been pretty much since the word was coined (in 1933).
“Proactivity,” says Wikipedia, refers to “anticipatory, change-oriented and self-initiated behavior in situations.” In risk management and elsewhere, “proactive risk management” entails addressing problems before they start: in case fire fighting becomes necessary, an extinguisher needs to go here. But what if the extinguisher doesn’t work? You have a backup: a contingency plan.
Reactivity, on the other hand, involves action in response to something. A fire breaks out; you grab one of the fire extinguishers called for in the proactive risk management plan.
A “proactive vs. reactive” debate pitting one approach against the other is, therefore, counterproductive. One isn’t good while the other is bad. For effective risk management, both approaches—reactive risk management and proactive risk management—are not only necessary but critical.
Proactive vs. reactive: What’s the difference?
When we think of risk management, chances are that it’s the “proactive” sort that we’re pondering.
Risks are potential threats, not ones that actually pose any danger or hazard. So managing risks entails proactively identifying what might go wrong in the future–considering future risks–and setting in place controls to reduce or prevent any negative impacts–harm or loss–that might occur if something did go wrong.
- Risk identification
- Risk assessment
- Risk treatment (acceptance, mitigation, etc,)
- Risk monitoring
- Continuous improvement
These steps might be considered “proactive,” and indeed with their forward-looking vision, they do aim to stop threats before they start.
But a reactive approach—one that tackles threats as they emerge and examines incidents for their root cause to prevent those threats from surfacing again—is just as important to an overall risk management strategy as proactive risk management.
Proactive risk management is what happens before a risk becomes a threat.
Reactive risk management is what happens after a risk becomes a threat.
In reactive risk management, the process outlined in the proactively devised risk register or risk management plan gets enacted and tested:
- How well did the response work? Did it help the enterprise or unit meet its objectives?
- What in this risk management approach needs changing? How can this response work better the next time the same or similar threats or incidents occur? Is a different response needed?
The answers to these questions can enhance the proactive aspect of your risk management program, strengthening the controls already in place and defining new ones that might be needed.
Far from being outmoded or unnecessary, reactive risk management is as necessary as dodging a vehicle barreling your way as you’re crossing the street. Your objective is to not get hit. Although you proactively looked to your left and your right before beginning to cross, you still need to react to the threat. So it’s not a matter of proactive vs. reactive: Both a proactive approach and a reactive approach are necessary for truly effective enterprise risk management.
Proactive vs predictive risk management
Recently the term “predictive” entered the risk management lexicon. Although predictivity is sometimes considered part and parcel of the proactive approach, there is a subtle difference: while proactive risk management involves identifying existing risks, predictive risk management imagines risks that might exist in the future.
But proactive risk management can and should include predictive strategies. It should identify existing as well as potential risks so that, when a threat or incident of any kind presents itself, risk managers know how to react to minimize harm to the business.
Here are the differences between and similarities among reactive, proactive, and predictive risk management:
Reactive risk management takes place in response to a threat or incident. It involves:
- Preventing threats from becoming incidents
- Mitigating damage from incidents
- Stopping incidents from worsening
- Continuing critical business functions in spite of incidents
- Evaluating each incident to solve its root cause
- Monitoring to ensure that the incident does not recur.
Proactive risk management addresses threats and incidents before they occur. It includes:
- Identifying existing risks to the enterprise, business unit, or project
- Prioritizing identified risks according to the magnitude of their threat
- Analyzing risks to determine the best treatment for each
- Implementing controls were needed to prevent risks from becoming threats or incidents
- Monitoring the threat environment continuously.
Predictive risk management attempts to foresee what risks may emerge in the future. It involves
- Analyzing past and current risks to find gaps in the risk management plan
- Identifying potential risks using scenarios
- Devising “just-in-case” controls to contain risks that emerge.
Predictive risk management attempts to:
- Identify possible risks in a situation based on given circumstances;
- Identify new threats in hypothetical scenarios; and
- Anticipate needed risk controls.
So, which is better: Reactive, proactive, or predictive risk management? The answer is, “all the above.” The best enterprise risk management plan will address risks real and imagined, in every possible situation, and in every timeframe: yesterday, today, and tomorrow, for all time.