March 28, 2017
5 Steps to Profitable Risk Taking
by Jim Kaiser
Companies that advance don’t do so by avoiding risk. They don’t do so in spite of risk. They do so in conjunction with risk. They embrace it.
The really bad thing about risks is that they almost never lead to a loss. Why would that be bad? Because risk aversion is responsible for so much lost opportunity. Risk aversion allows us to shoot down ideas faster than we build them up. It is easier to cite a risk that a project or change effort will fail than to undertake it.
But getting ahead means change, and change means risk. Those who prosper in business, take risks. The list of leaders who wouldn’t take risks is a very short one.
The biggest risk is not taking any risk… In a world that’s changing really quickly, the only strategy that is guaranteed to fail is not taking risks. – Mark Zuckerberg
In other blogs, we’ve written about the price you pay by not adapting. It’s not a question of whether you should take risks, but how to do it well. Nearly all great advances come through leaders’ appreciating an opportunity and understanding how to manage its risks. So often in our discussions with companies, we encounter leaders who acknowledge the opportunity we present, but who are stymied by perceived obstacles to acting on it. The focus turns too heavily to what lies in the way rather than the path. These obstacles become risks – “unknowns” – that inhibit desired transformation.
See also: 4 Steps to Integrate Risk Management
Risks are an integral, essential part of improvement. They force us to think, to adapt, to learn. Companies that advance don’t do so by avoiding risk. They don’t do so in spite of risk. They do so in conjunction with risk. The question is not how to avoid risk, but how to embrace it. Leaders love risk as a thing to be conquered, not feared. Here’s how they do this.
Define your goals in detail before you define your risks.
It’s easy to get sidetracked by anxiety. The mention of a potential goal is more often met by caveats about it than by building out the path to the goal. Leaders focus first on the goal and the value of achieving it.
Act on risks constructively.
Draw up a list of risks that could materialize on your way to your goal. Define each risk (what it is), what impact the risk can have, the probability that it will occur and what should be done to manage it. Most often, the risk is much smaller than you imagine. For example, if we more aggressively negotiate medical cost reductions, we might generate more litigation. That might cost us $2,500 per case. This might happen on 10% of the cases.
Don’t stop there….compare your risks to your upside – Our plan will result in reductions of more than $1,800 on 80% of all cases…..The upside is positive. Keep moving forward.
Enlist people in problem solving…not problem identification.
When engaging with others on a project or change effort, dwelling on risks leads to managing against a fear of failure. Get people involved in answering this question: “How can we achieve [name the goal]?” – rather than “what do you think of [name the goal]?” For example, how might we successfully achieve medical-cost reductions without generating litigation?”
Plan for success and manage your way there.
Managing risk doesn’t mean playing defense against potential disaster. On the contrary, it means keeping a clear eye on what you want. When we implement with a client, we have a detailed list of action items to be accomplished by our customers and us. Tedious? Not really. Critical to success? Absolutely. We know the critical success factors and we plan for and execute on them.
Use risk to learn.
We all know that stuff happens. Recognize it. Learn from it. Move on. Peter Drucker, the famous management guru, said it best…..
“People who don’t take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year.”
See also: Are Portfolios Taking Too Much Risk?
If you’re feeling hemmed in by risks, take a different approach. Embrace it. It’s the only way to master it.