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Does risk worry or scare you?

It shouldn’t. Risk is part of life – part of every hour of every day. Driving, eating, social media, holidays, gym – it’s easy to identify some of the risks associated with each of them. Risks pervade pretty much everything we do…. But isn’t risk a nasty, avoid-if-you-can sort of thing?

That’s a very constraining and un-necessarily fearful way to think. A better way to think of risk is to get to grips with it – know it exists and what form it takes and come up with a plan on how to deal with it. To start with it’s worth understanding that there are two dimensions that make up any risk: the likelihood of the risk happening, and the impact it would then have. For example, a meteorite could hit earth. What’s the impact? If it’s a big one, like the one that hit earth 65m years back, then it’s not good – extinction for most lifeforms sort of not good. But what’s the chance? About 1 in 300,000 each year. Hmm… OK, cancel the meteorite shelter I ordered on Amazon on Black Friday, I’ll buy that new 60” TV instead.

For significant risks, it’s worth having a plan: the good news is that much of the time we do that sub-consciously – like looking before crossing the road or taking an umbrella if it looks like rain. For those risks deserving conscious consideration, the plan could be to ignore it, or to reduce the likelihood, or to minimise the impact. How you plan to deal with the risk depends on your perception of the risk. Does it really matter to you and are you motivated to do anything about it?

We get a buzz or a reward from successfully managing risk, whether that be the extreme of bungee jumping, asking someone out on a date, posting your latest antics on Facebook, or driving above the speed limit. It’d be a dull life lived in avoidance of any risk, though of course you can go too far the other way… So don’t be fearful: weigh it up and do or don’t do.

Human awareness and attitude to risk is interesting. We tend to think short term – for good reasons: immediate risk needs immediate response, so we react swiftly to short-term risk, such as crossing a road safely, or cutting costs if there’s a round of redundancies coming up. However, we tend to think we have time to deal with longer term risks, such as smoking, or not exercising, or not getting that big project started, whether it’s fixing the roof or writing that college dissertation. The problem is that those longer-term risks often have high probability of a high impact – so actually it would make sense to act early.

Unfortunately, it’s all about how we’re wired and the fact that over thousands of years we’ve evolved to live longer, think more, and be in a position to take longer term views about how to live better. But our sub-conscious, our “chimp”, wants pleasure and upsides now. The immediacy of a chocolatey dessert with double cream or a delicious steak pie and home cooked chips, washed down with a pint or a glass of wine on a sunny day, has an immediate appeal that an hour in the gym followed by a healthy salad and spring water hydration may not. But if you keep making that same choice, then the longer-term impact as the weight piles on and the fitness slips away may be illness, disability and a shortened life.

It may be fine though to choose to eat and drink like that – provided you have made a conscious decision on the way you want to manage that risk.

Is there a conclusion? I would say:

1. Do take on risk – it’ll make you alive and fulfilled!

2. Have a think on how to manage the most relevant risks

3. Don’t kid yourself that you can put off managing risks: they will build up anyway – you just need to decide if and when to make decisions to reduce the negative consequences.

And all this applies in just the same way if you run a business. In fact, business can be defined as taking risk in order to gain reward. Being comfortable with risk and how to master it is pretty much the top capability before you start on all the rest.

#risk #strategy

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