Do you know what your biggest risks are? Really?

I’ve been spending some time at the Stanford business school, taking a class on venture viability research. What’s surprised me in particular, though, is the weakness people have in assessing risks. It’s funny, because assessing risk isn’t actually that hard. So let me explain why it gets people.

I’m going to assume that there are three types of risk:

The first type of risk is the “out of left field” risks. These are the risks that you didn’t know about, and couldn’t possibly predict - some might refer to these in other circumstances as “black swans.” For example, the risk that a volcano in Iceland explodes and grounds all air traffic to and from Europe for a week. These are indeed dangerous, but there is not much to be done besides doing a healthy amount of research so we make sure these risks are really coming out of left field and not something we should have known about. Indeed, doing more would probably be a waste of your time.

The second type of risk is the type of risk that people are most familiar with, and good at, assessing. These are the “know all about it” risks. We find these through our research, and we can get pretty good at knowing how much of a risk they really are through research. Most importantly, though, is the fact that we can prepare for these risks, and do things to minimize them. No one teaches risk assessment without also teaching risk management and minimization. We know what they are, so we’re prepared to do battle.

It’s the last type of risk that really gets us. It’s the “didn’t assume it would be an issue” risks. What exactly does that mean? Exactly what it implies - we actually knew about the risk, we just didn’t assume it would be an issue. It was a self inflicted blindspot, something we’re not monitoring as we would a risk we knew about. And why would we do that? Quite simply, we make an assumption. We don’t often take the time to test our assumptions. But these are crucial to our success - if we’re assuming something, we’re generally not concerning ourselves much with that assumption. We understand this intuitively, we tend to pity those who have been damned by this tendency - the music industry, publishing industry and soon the tv industry.

But think about your own projects you might be working on… Are you making a news reader and assuming people still subscribe to RSS feeds? Are you starting a bookstore and assuming people still buy books at bookstores? Are you building an iPhone app for TV and assuming people want to watch TV all by themselves?

What fascinates me is the opportunity for some of designer’s softer skills to help here. So much of the design process is just about testing assumptions. Design research, that initial stage, is said to be most successful when you “look at the world through a child’s eyes,” questioning everything. This allows you to make assumptions based on what you see actually going on in the world, as opposed to preconceived notions of your predictions. Then, one refines the assumption’s language and credibility through continued research. But everyone’s favorite way to test assumptions is prototyping, building something to test that assumption.

Here’s my generalized advice: I’d begin by making a list of key assumptions you’re making - a lot of these happen to be the main features of your project, and your justification for why you’ll succeed. Then, plan out how you’re going to make sure you’re right - questions, research, and prototypes (even if it seems obvious, spending a minute to double check even in just a vague manner isn’t a bad idea). Then go out and try to kill your blind spots.