Is your board so risk-averse that nothing happens? A too-cautious board or CEO may do as much harm as one that is reckless.
In his Adventure Journal article In Defense of Taking Risks, Steve Casimiro offers a helpful response to those who suggest that risk is something to avoid at all costs. Casimiro is an adventurer, not a daredevil. He revels in the freedom and exhilaration that backcountry skiing and mountain biking make possible. He doesn’t condone recklessness. Rather than avoid risky ventures altogether, Casimiro urges us to identify the risks our ventures bring, analyze them, and prepare for them.
Identify the Risk
What are the risks you’re facing? Which risks pose a real threat, and which are just inconveniences? Obviously, it’s no good to overlook things that may really cause damage. It’s also no good to see demons behind every bush. It’s important to know what threats are real, and which are either imagined – or so unlikely that they may as well be.
Analyze the Risk
What kind of risk is it? Although Casimiro obviously has not died from his adventures, he does admit that “over the years . . . I’ve come far too close to it, sometimes through my own oversight, sometimes through the misjudgment of others, and sometimes from simply doing what we do, which is push the margins.”
Casimiro is talking about the same three types of risk that Robert S. Kaplan and Anette Mikes discuss in their Harvard Business Review article Managing Risks: A New Framework. Kaplan and Mikes provide three qualitative categories of risk: Preventable risks, those that arise through our own oversight; external risks, those that result from the action of others or the environment; and strategy risks, those that come from “simply doing what we do.”
Prepare for the Risk
Analyzing the risks you’ve identified will tell you how to prepare for them. And it’s the preparation itself that takes away much of their power to cause damage. The fact of being prepared removes much of the uncertainty or fear that something bad will happen. Our preparations give us confidence and risks lose much of their power to distract us from our goals or to paralyze us from moving toward them. You’ll mitigate some potential disasters simply through smart policy-making, others through contingency plans or simulations. Planning and policy-formation allow us to prevent many problems from occurring or to respond quickly to those that do.
10-minute Board Discussion
Is there one area of our work where we are being too cautious?
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Disclosure of Material Connection: I have not received any compensation for writing this post. I have no material connection to the brands, products, or services that I have mentioned. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”