Risk Fascinates

tight_rope_walkerOne of the defining characteristics of risk is that if fascinates us.  In part because it is powerful and in part because it can be frightening.  It attracts us and repels us at the same time.

A new novel by Christopher Reich called “The Prince of Risk” was just released.  It is selling well.  No doubt the title and the topic bPrince-of-Risk-Official copyoth draw readers.  The lead character is described and a “fearless New York hedge fund gunslinger.”  Whether you are driven by a desire to see the fellow take massive risks successfully or to suffer from his hubris matters not.  The fact is that risk fascinates us for a multitude of reasons.

The Risk Overhang – Which Can Lead to the Risk Hangover

balanced-rocksCorporate, organizational and personal risk profiles are dynamic and situational.  Dynamic in that they change often.  By the nature of organizations having a more gradual decision-making process than individuals, their risk profile changes more gradually.  Individuals, on the other hand, may change their risk-profile much more often based on successes, set-backs, access to capital, financial security – or lack of it – and countless other variables.

Organizations are often overly risk-seeking in an upswing and overly risk-averse in a downswing.  Call it the risk overhang, which can lead to the risk hangover.  It is a function of excess – a risk posture that is no longer in alignment with the business and economic environment.  It overhangs the change in conditions.

It is all a matter of balance – or lack of it.  A successful risk posture always is.

The Risk Tension

Trail Ridge, croppedThere is an innate tension when it comes to risk – between the knowledge that we need to take thoughtful risks and the desire not to.  These two elements are the basis for the logo for the Research Institute for Risk Intelligence.

Logo for FacebookThe blue and the purple are offset at juxtaposition but also complement one another.  When joined together they create an image that speaks to continuity and by virtue of the Möbius nature of the design make reference to the concept of infinity.

The intent it to represent all that can be achieved when we allow the tension about risking to recede and adeptly combine the two elements of challenge and caution.

Lead So Your People Think Like Founders

Leaders, cropped

Peter Thiel was a co-founder of PayPal and the first outside investor in Facebook. When he offers insights on how big companies can be more like startups, it’s worth listening.

His observaPaypal-Logotion is that companies can be innovative and agile when they are led by founders or a person who is as close to a founder as possible. He goes on to observe that “founders are often able to make more choices and take more risk and have more inspiration than more politically minded CEOs.”

So, what does this mean to you as a leader in your organization? Let’s focus on his characterization as close to a founder as possible. Well, firFacebook-logo-PSDst off what are the traits of a founder? There is no on uniform template, but in general founders tend to be visionaries. They need to comfortable taking risks and have a reasonable amount of courage to do so.

So, will your people be more innovative and take more initiative if they exhibit these traits? Yes, very likely. Should you work to make them more comfortable taking risks like founders do, though likely not on the same scale? Yes.

I talk at length in my books, presentations, coaching, posts, etc. about the need to create an organizational culture that encourages and rewards intelligent well-executed risks. As you do this in your organization, it may help you to think in terms of creating a setting where you people are given the permission to think a bit like founders.

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The interview referenced in this post is accessible at: http://online.wsj.com/articles/peter-thiel-on-why-big-companies-dont-think-like-startups-1414962990

Subjectivity in Risk Assessment

Woman-Risk-Taking, croppedIn my book The Power of Risk (Maxwell Press), I discuss how we see a risk as less threatening if we see the value the potential rewards of the risk.  By Power cover - 2 inchcontrast, to the extent we do not value the potential rewards of a risk, we tend to see the risk as more threatening.

It is interesting to see that Baruch Fischhoff and John Kadvany in their book Risk, A Very Short Introduction (Oxford University Press) cite research that shows that both individuals and societies accept greater risks from voluntary hazards than from involuntary ones.

Similar concept.

Common Perceptions of Risk

Risk takerConsider the definition of risk from the Merriam-Webster Online Dictionary:

risk

1: possibility of loss or injuryHighlighting Rewards Versus Risk

2: someone or something that creates or suggests a hazard

3 a: the chance of loss or the perils to the subject matter of an insurance contract; also: the degree of probability of such loss b: a person or thing that is a specified hazard to an insurer c: an insurance hazard from a specified cause or source

4: the chance that an investment (as a stock or commodity) will lose value

Is it any wonder that many of us have a conflicted relationship with risk and risk-taking?  Look at these definitions.  They are uniformly negative.  The thought that a risk could have a positive outcome is entirely absent.

  • Couldn’t the first definition read:  possibility of loss, injury, success or accomplishment and indeed be accurate?
  • Wouldn’t the fourth definition be more accurate if it read:  the chance that an investment (as a stock or commodity) will lose or gain value?  Certainly an investor, entrepreneur or company does not put capital at risk unless there is a reasonable chance of an increase in value.

This definition illustrates the common societal bias against taking risks – even thoughtful, intelligent ones.

A Definition of Risk

Uncertainty-sign v2Risk touches all aspects of our professional and personal lives. At its core, business is about managing risk. It is about risking time and resources in search of a positive return. A company that stops risking will soon no longer exist. It is not possible to remain in business without taking risks successfully.

Achievement is about managing risk. A risk-free existence does not exist. Trying to create one will just result in frustration and suppressed performance.

So, what is a good definition for risk? One that captures both the positive and negative implications of taking risks?

How about this:

Risk – Any action with an uncertain outcome.

Simple and straight forward. The clear implication is that nearly any action has some degree of risk. Exactly.

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