By Charlie Trautmann and Dean Briere
Ask a dozen people what “risk” means, and you’re likely to get two dozen answers, or maybe three. That’s because risk, a concept brought into the English language from the French some 400 years ago, is so multifaceted. Why is risk important? It’s because how risk is handled can spell the difference between success and failure or, put more dramatically, between thriving and extinction. So what do the experts mean by the term “risk,” and how can that help us, our museums, and our field thrive?
Risk is often thought of as the negative outcomes associated with uncertainty. Typical applications of the term include general outcomes (the possibility of loss or injury), finance (the possibility of the return on an investment being lower than expected), or insurance (the amount that an insurance company could lose).
For analysis, risk has often been quantified by its “expected value,” calculated as the product of the probability times the consequences of something happening:
Probability of event x consequence of event = expected value of risk
Even given a strict definition and a specific type of risk, our interpretation and subsequent response may be at odds with a scientific analysis. Consider the following scenarios, both of which might have the same “expected value of risk.” In the first scenario, consider the probability that, in a large science center, five guests per year will have a bad experience and cancel their $200 membership. Assuming one annual renewal per membership, the “risk” would be:
five memberships lost x two years x $200 cost = $2,000
We can probably live with a risk like that (even though losing even a single member might bother us).
For the second scenario, consider the probability of one person getting injured on an exhibit and suing (say 2% probability per year), with a resulting total cost of $100,000 (this includes the insurance deductible, loss of public good will, and use of senior staff time to manage the situation). For analysis purposes, the expected cost is calculated as: 0.02 probability x $100,000 total cost = $2,000
Technically, the expected value of these two risk scenarios are the same, but which outcome would be considered more serious and receive more preventive attention?
Thriving on innovation
The meaning of “risk” has evolved over time to embrace uncertainty in both positive and negative directions. In other words, risk can also refer to the potential gain resulting from an action—or inaction. This has huge consequences for science centers, because we thrive on innovation and risky ventures, which can have either positive or negative outcomes. Science centers commonly take risks in hopes of potential benefits.
The International Organization for Standardization (ISO) defines risk as the “effect of uncertainty on objectives.” For thousands of experts that ISO polled, the term “uncertainty” can include uncertain events (which may or may not happen) and uncertainties caused by ambiguity or a lack of information. Importantly for us in the museum field, risk so defined includes both positive and negative impacts.
One other useful distinction is the difference between “risk” and “uncertainty.” Risk involves both probability and potential outcome, while uncertainty generally refers to only the probability of an occurrence.
In this article and those that follow, we will explore some of the many meanings of risk—including both its positive and negative aspects. How can a museum take a systematic approach to risk? When should risks be taken or avoided? Most importantly, how can a museum use risk to its advantage?
Risk: Don’t avoid it, manage it
Let’s face it: not all risk is bad, and not all bad risks should be avoided. On the other hand, all risks should be managed, regardless of their probability and potential outcome. Here’s a simple set of steps you can use to manage risk.
1. Clarify goals. Risk management starts with clarifying the mission, vision, values, overall strategy, and short-term objectives at the appropriate level (individual, organizational, or fieldwide). The reason for clarifying these key elements as a starting point is that they form the context needed to assess risk.
2. Recognize the risks. Risk, as we know, can have either positive or negative consequences. Within a variety of broad areas and scopes, risk takes many forms, such as the risk that a new program will bring in a new audience (positive) or offend some guests (negative); or that a new human resources healthcare policy might help some staff members but not others and also help or hurt the budget, depending on who actually takes part in the new program. Identifying risks should be part of all decision-making.
3. Determine the expected value. For each risk, assess its probability and list any potential consequences, rewards, and costs, including insurance, if appropriate, plus other key factors. Use these numbers to determine the expected value of the risk using the formula: probability x consequence = risk.
4. Weigh the factors and communicate. Once an inventory of all relevant factors has been assembled, weigh them against each other. This almost inevitably involves judgment, and you may want to discuss the risk with relevant stakeholders, which could include departmental team members, the board, or beyond, for large decisions. Communication is critical at this point, because you’ll want to consider the best ideas, and you may not want to absorb all of the consequences yourself, should things fail to work out as hoped. Good communication is good risk management. You and your team are now ready to make a decision.
5. Implement, monitor, and revise as appropriate. Once a decision has been made and implemented, risk management doesn’t end. It is important to monitor the outcomes of the decision so that adjustments can be made if things do not work out exactly as anticipated. This feedback loop is critical to the success of the process.
Some common risks for museums
Although risk can be classified in various ways, the concept of scope (individual, organizational, or fieldwide) forms a good starting point, because it helps us to assess our agency, or capacity, in managing a particular risk. Scope also helps in assessing the extent to which we should involve other stakeholders and how broadly we should communicate our findings.
Individual risk. Individual risks are those that affect primarily a person and have a relatively smaller effect at the organizational level (though not always). According to Siobhan Keefe, vice president of finance who oversees risk management at the Franklin Institute in Philadelphia, “Individuals should consider managing risk similar to how an organization does so, by identifying the types of risks they are exposed to, considering all options to mitigate those risks, and implementing the solution that best fits their needs.” Some common types of individual risk at science centers include:
- Professional development—Over time, changes in technology and society can render our skills obsolete. Sometimes this happens in slow steps, but sometimes a new technology, such as 3D printing, can suddenly eliminate the need for certain types of jobs. Is yours one of them? Is your skillset such that you can adapt and do new types of work using new methods?
- Relationship with a manager . . . or the public—We’ve all had at least one manager with whom we didn’t see eye-to-eye. There are risks of speaking up when we disagree, as well as not speaking up, and the consequences can have significant effects. In some cases, responsibility for organizational decisions, and how the institution is publicly regarded, can funnel down to one individual—often the CEO or a senior staff member. Being sensitive to the broader impact of our decisions is important.
- Personal injury—Does your job have potential health risks? This can range from repetitive motion hazards to psychological stress to lifting heavy objects.
- Retirement planning—This is a classic tradeoff involving short-term versus long-term risks. Do the terms of a museum’s retirement plan affect your decision of whether to accept a job there? What if the museum does not even have a retirement plan? If your retirement plan offers pre-tax contributions, how much of your short-term income do you risk for the chance to enjoy a richer retirement decades down the road? If you have the choice, what types of investment risks are you willing to take with the funds in your plan, and how do you allocate them between various asset classes, such as stocks, bonds, or cash?
Organizational risk. Organizational risks, also known as operational risks, have greater scope, with implications that relate to groups within an organization or the entire organization itself. Risk management is most effective when it is part of everyone’s job at a science center, regardless of individual roles in the organization. Some typical examples of operational risk include:
- Program—One key way that science centers remain viable is through innovative new content, such as educational programs, exhibits, events, and media. Developing content is inherently risky at many levels, however, and can have either positive or negative impacts on finances, public relations, audience, and many other areas. Prototyping and piloting are common strategies for increasing quality and impact, while reducing the negative risks inherent in developing new content.
- Public Relations—Many potential visitors now shop online for experiences. Especially in the case of tourist guests, online ratings may be the only factor used in selecting activities while traveling. There is risk involved in attempting to provide legendary service in order to receive five-star reviews.
- Key Person—Some museums will purchase life insurance policies to insure against the untimely loss of a CEO or senior director. If an organization is dependent on its CEO for funding and other key activities, insurance might be in order.
- Data security and loss—theft or loss of data can be costly. There is also the risk of losing other people’s data—breaches where donor data or credit card data are exposed. As with many insurable risks, the best insurance is a strong firewall and regular backups, stored safely and off-site. But data coverage should always be considered part of a comprehensive insurance program.
- Human Resources—Risk associated with paid and volunteer staff has changed dramatically in recent years, and it is worthwhile for a museum to review its exposure to risk at least every few years. Lawsuits can include unlawful termination, age discrimination, sexual harassment, and even advice on matters such as retirement investments. Communication is a key tool, but insurance coverage should also be part of any loss prevention program. While it should go without saying, the best insurance against harassment lawsuits is not to tolerate a culture of harassment, from any member of the staff.
- New facilities—One of the biggest risks an organization can engage in is to undertake a major expansion of its building. Almost all science centers face this possibility at some point, and careful planning and conservative projections can make the difference between thriving or suffering decades of financial difficulty. Kim Gladstone Herlev, director of the Experimentarium in Denmark, recently wrote, “We took a risk when we undertook the rebuilding of the Experimentarium in Copenhagen. We allowed ourselves to rethink everything: facilities, operations, business model, exhibitions, navigation, brand identity, and communication.”
- Financial risk—Financial investments differ greatly in risk, and so making the tradeoffs between risk and reward can be a complex task. Good advice, good judgment, a solid investment philosophy, diversity, and consistency are the hallmarks of successful investing. Of course, investment risk can also be affected by politics, weather, and other major factors beyond a museum’s control. The investing decisions are far-reaching and can affect various areas of a museum’s operations, such as a museum’s endowment, retirement plan, and the value of its reserve operating funds. In fact, many potential donors look at how organizations managed past investments as part of their decision-making process about whether to make donations.
- Building risk—our buildings and exhibitions have significant value and contribute considerably to our ability to operate as museums. There are many subtleties; for example, some policies cover “loss of business” and provide funds so that a museum can still operate in a temporary space after a closure from various causes. In general, it is a good idea to look for an insurance agent with experience insuring museums and connections to major insurance carriers that offer museum-specific policies.
Field-wide risk. While many of us are concerned primarily with risk at the individual and organizational levels, it is equally important to keep the big picture in mind. The Association of Science-Technology Centers (ASTC) and a number of other regional museum associations put their focus here. The stakes are high, as strategic decisions on risk have the potential to affect hundreds of museums associated with the field. Here are just a few examples:
- Personnel risk—Any field needs a constant influx of new talent and ideas to expand its reach and improve the depth of its impact. Science centers do this through professional development. ASTC makes professional development the primary focus of its annual conference, which will be hosted by the Connecticut Science Center, September 29 through October 2, 2018, in Hartford, Connecticut. What other forms of professional development should the field invest in? The field needs every member, from entry-level to CEO, to share their aspirations so that the most effective approaches can be implemented.
- Technology risk—what new technologies will affect the operation and educational offerings of science centers in the future? Should we position our field on the bleeding, leading, or trailing edge of new technologies? Planetariums and IMAX movie theaters, for example, were once a cash cow for museums large enough to house them, but over time, their value has gradually diminished as technology has evolved and competition has increased. Technology risk assessments should include best-guess estimates of product lifespan in addition to an analysis of benefits and costs.
- Program content risk—What areas of STEM content are likely to be of most interest to science center guests in the coming years? Society is changing rapidly, and how the science center field responds has risk, both positive and negative. Linda Conlon, CEO of the Centre for Life in the U.K., puts it this way, “The accelerated pace of change in the twenty-first century throws up all sorts of risks for the world’s science centres, such as changing demographics, new technologies, and a move towards more personalized experiences. These risks also present great opportunities. We need to respond to them, and we should not be their slave. It has never been more important to be clear about what we do—and then aim to do it even better.”
- Risks related to demographics—Changes in demographics are leading to changes in audience needs, and how we as a field respond will affect whether our audience expands or not. Social media, online purchasing, and the emergence of many private educational vendors who can potentially replicate offerings associated with science centers at lower cost—all of these changes provide opportunities and challenges; in other words, risk. Some programmatic initiatives require considerable investment, and not all will be successful. Where does the risk lie, and what are the consequences of success or failure? What are the risks of doing nothing?
Risk can have both positive and negative implications. Risk is always present and should be managed, rather than avoided or blindly taken on. In some cases, insurance may be part of managing risk, but in other cases, following a consistent process may be all that’s needed. In all cases, clear communication with the appropriate stakeholders and testing at a small scale are two of the best tools for managing risk.
Charlie Trautmann is a consultant and former museum director in New York. Dean Briere is executive director of the Sciencenter in Ithaca, New York. They have over five decades of combined museum management experience.
About the image: The Franklin Institute has made a priority of reaching all individuals in its region. Photo courtesy the Franklin Institute.