"Let's make a dent in the universe."— Steve Jobs
Life rewards risk. Helen Keller was an American author, political activist, and lecturer. She was the first deafblind person to earn a bachelor of arts degree and an inspiration to her own generation and several that followed. She is an example of someone who overcame enormous adversity to change the world she lived in for the better. She said that "Security is mostly a superstition. It does not exist in nature, nor do the children of men as a whole experience it. Avoiding danger is no safer in the long run than outright exposure. Life is either a daring adventure or nothing."
The lives of organizations and businesses are no different. Leaders would do well to understand the nature of risk and develop a world view of it that serves their customers, workforce, and mission better than most that I encounter.
Risk is usually defined as the potential of losing something of value from a given action, decision or activity. But this view entirely misses the understanding that value can be gained from exposure to risk. It is in the potential to benefit from risk that sophisicated leaders can do their finest work. Risk requires the intentional interaction with uncertainty, a possibility that many leaders are not willing to entertain, unfortunately.
This equation is usually used to describe risk:
- Risk = Threat x Vulnerability x Cost
- Threat is the frequency of potentially adverse events
- Vulnerability is the likelihood of success of a particular threat
- Cost is the total cost of the impact of a particular threat
But, as commonly used, it virtually ignores the up side of risk, of deciding what not to do, and the duty of leaders to assess and accept strategic risks.
The most common mistakes that I see are:
- Not understanding the up side of risk; that there is value to be gained from exposure to the consequences of uncertainty and risk,
- Focusing completely on the down side of risk,
- Not specifically defining the down side and the up side, detailing the possible specific effects and probabilities of a possible course of action,
- Not comparing the down and up sides to assess the net organizational benefits of success,
- Not separating tactical from strategic risks; the former should be easier to assess and accept,
- Not identifying tactical risks that can have strategic benefits,
- Not accepting strategic risk,
- Being completely risk averse. This is very common in government.
- Being unwilling to decide what not to do.
Leaders owe their people and businesses keen judgments and high quality decisions on risk and that doesn't mean avoiding it altogether. This is what I recommend:
- Understand that the province of enlightened leaders is in maximizing the realization of opportunities by accepting risks that pay off on the up side, not simply avoiding down side risks,
- Define the up side benefits very specifically,
- Define the possible down side consequences very specifically,
- Assess the probability of both,
- Compare benefits and consequences along with their probabilities,
- Separate tactical from strategic risks,
- Be willing to accept strategic risks,
- Be willing to decide what not to do.
For leaders it's riskier not to take informed risks. If you don't, you guarantee that things will remain the same; certain death for any organization.
"Only those who risk going too far can possibly find out how far they can go." — T.S. Eliot
Keith Stalder, #47
Copyright © 2015 Keith Stalder & Associates, LLC. All rights reserved.
Keith Stalder has over 40 years of leadership experience in organizations from the very large and established to small technology start ups and everything in between. With a broad and deep appreciation for, and understanding of, the fundamental challenges of organizations and businesses, both in government and the private sectors, his passion is to help all organizations become all that they aspire to. He is the founder of Keith Stalder and Associates, LLC, a company dedicated to advancing organizational visions and fundamentally transforming how businesses everywhere are run. Visit www.ksaintegration.com for more information.