Note from the author: This post has everything to do with risk and nothing to do with Tom Cruise sliding into a living room dressed in a white shirt and socks. Sorry folks, not that kind of blog.
It feels apt to be writing a piece about risk at the start of the year. If your business year starts in April, you’re no doubt up to your ears in strategies and goal-setting right about now. Revenue streams are likely being pondered and projected and an HR review is probably underway of what new roles need to be hired, which need to be evolved or which need to be made redundant. Sound familiar? I sense a few nodding heads.
Planning for the future is always risky because it’s based purely on predictions. No matter how amazing your data is, how digitally transformed your business is, or how much you think you know based on all your years of experience, none of us really know what the future will bring. And that kind of guaranteed uncertainty probably makes you do one of three things:
- Jump for joy
- Shrug your shoulders and say, “Meh” (or if you’re French, “Comme ci, Comme ça”)
- Try and calm yourself down to a panic
Risk: It’s Personal
Without pushing those of you who hate risk towards a lavender oil overdose, risk really is everywhere. Driving a car. Living in a city. Flying in a plane. Simply being alive and active in the world. Everything carries risk but what’s really interesting (for me at least) is how people perceive risk that in turn influences their behaviour and life choices. For example, Person A stays in a full-time job all their life because the risk of going out and setting something up on their own is totally terrifying. That same Person A however is a total adrenaline junkie and loves to skydive and bungee jump. Now let’s use me as Person B. I haven’t been in full-time employment for a while now. The uncertainty of what projects lie ahead is exciting to me. My appetite for risk, within this context, is pretty enormous. But tell me to jump out of a plane or off a bridge with a cord connected to my ankles and you will be met with a very loud “Hell no!” Not in this lifetime, or the next.
Why is this? Put plainly, we simply like things or we don’t. Psychologists call this affect heuristic – a mental shortcut that people learn that allows them to make decisions quickly and efficiently based on their emotions. Sometimes the emotion is based on positive sentiment like joy or excitement. Other times, the emotion is based on negative sentiment like shame or fear. Risk is an emotional affair. In fact, if Risk had a Facebook profile and was forced to create a status update it would look something like this:
“Current status: ALL the emotions.”
If your ambition this year is to be bolder, braver and a little bit more adventurous, how can you detach yourself from the emotions that you’ve associated with certain things? One thing you can do is ask yourself, “Is this truly a risk or do I perceive this to be a risk?”
Next step is to get yourself an order of data with a side-order of facts. The third step, and this may be the most important part, is to study how the data has been framed. Facts and data are often packaged within a story and depending on the angle or frame, this can change how risky something may seem.
For example, a headline screams “Cancer Risk In Your Breakfast Fry-Up”. You read the story and learn that by eating 50g of processed meat (like bacon and sausages) every day you increase your risk of bowel cancer by 20%. Positioned like this, eating bacon sounds like a major health risk and going vegan (immediately) suddenly sounds like a great idea. But when you dig into the data, the risk is really quite small. Out of every 100 people who make a three-rasher bacon sandwich for breakfast every day of their lives the number of bowel cancers would rise from five to six. Positioned this way, you might think, I’ll have extra bacon with my bacon please!
From Risky Bacon To Risky Business
What influences a business to take risks? Research shows that a firm’s past performance status, how threatened they feel in the current environment and what their capacity is to take on risk are three main factors. Research also shows that being able to take a risk enhances levels of confidence in a decision-maker. Being in the position to take a risk feels good, which also explains why being overconfident can sometimes lead us to make poor decisions.
It’s clear that risk is a balancing act. Go too far one way, and things start to go awry. Go too far the other way, and the same thing happens. For most of us however, we could probably do with sticking our necks out a little more.
Need a reason? How about this:
Every year you get older, your risk of dying before your next birthday goes up by 9%.
And on that note, all the super, very best for the year to come everyone! Here’s to 2019.