Thursday, May 7, 2009

Don't Always Run For Cover By Mark Ronez

To succeed at anything, you have to take some risks. Remember the saying: "Nothing ventured, nothing gained"? The trick is to know how to be an effective risk taker. Once you learn how to do this, you can bet on an improvement in your life and career.

Risky business

While you may admire famous successful entrepreneurs and risk takers, when faced with risk, most people play safe and run for cover. This is because people are fearful of making a wrong decision, and focus instead on protective mechanisms, such as avoiding risky activities or delaying difficult choices.

However, risk is a natural part of life. When starting something new, such as a business or project, there are uncertainties and problems involved. For example, there may be little demand for your products, stiff competition or production issues. However, even routine activities involve risk.

Can you ensure you will never lose your job, have an accident or run into difficulties? Of course not! While we can mitigate risks to a certain extent, it is impossible to eliminate them from our lives because risk is inherent in life.

Making decisions

You have to make decisions every day. These range in importance, from deciding whether to take an umbrella with you to which business project to select. For less important issues, you usually do not deliberate much. However, when faced with more important choices that have a major impact, you invest more time and effort in analysing the situation.

Making a rational decision is often tempered by personal biases, emotions and cultural influences. Additionally, insufficient information and time pressures will also affect the final outcome. The ability to make good decisions will affect your success in your private and professional life.

This is particularly true for difficult decisions that can create value for yourself, your organisation or both. Risk and opportunity go hand in hand. You need to limit potentially negative consequences, while optimising the potential benefits of new opportunities.

Risk-taking types

People can be classified according to the following risk-taking profiles.

1. The gambler

Everyone knows someone who makes risky decisions by relying on his gut. This is not proper risk management, but gambling! Gamblers may be lucky a few times, but sooner or later, their luck runs out.

Many start-ups and new ventures are in this category - their managers take high risks with little risk management knowledge, which leads to failure. Over 95 per cent of new organisations created each year are gone within five years of operation.

2. The over-cautious pessimist

At the other extreme, is the guy who believes in Murphy's Law, "If anything can go wrong, it will". Organisations in this stage have a hard time making decisions, because they want to play safe and over-analyse opportunities and issues.

While this mitigates risk to a certain extent, it also prevents creativity and innovation. Organisations often end up missing the opportunities presented to them.

3. The avoid er

This is an unfortunate person who constantly tries to avoid risks by not dealing with reality. Individuals and organisations that adopt this approach ignore problems that eventually blow up in their faces. An example of this is someone who refuses to learn new skills or to make himself more employable by pretending that the workplace has not changed and that his job is for life.

4. The effective risk taker

This is the person who manages risk and makes good decisions. This is a skill set that can be learned and improved upon. By using a logical, systematic and practical approach, individuals and organisations can integrate risk management in decision-making.

Managing risks

When making decisions, it is important to be informed, emotionally aware and rationally capable of analysing seemingly conflicting information and risks to arrive at a sound decision.

Risk management helps you to understand the impact of your decision on all operations. It creates the models and tools to predict outcomes and build countermeasures to prevent unintended and undesirable consequences. The final outcome is minimised risk and higher returns.

As a start, you should:
  • Improve your risk awareness and understand how your ego, emotions and culture influence your perception of risks and the way you make decisions;
  • Change your mindset about risk. Since risk is inherent in the nature of life, learn to become comfortable with taking risks. Risk presents us with new opportunities and makes life exciting;
  • Always do a potential risk analysis when making important decisions; and
  • Learn risk management methodologies and tools to improve your effectiveness as a decision maker.

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