As a lawyer I guess I hear it more than most. People want to eliminate risk. How can we do this, or that, with little to no risk?
And you know the truth?
No matter how hard we try we can’t get rid of all risk.
Planes crash. Cars wreck. People get sick.
These things can’t be eliminated or removed. Quite simply we live in a world of risk.
My most experienced entrepreneurial clients live it. They breathe risk. I explain risks to them, they make a decision, and then move forward.
Other clients struggle.
I am writing this guide to help all of us think better about risk.
There Is No Risk Free
We must start with the premise that in life there is no risk free. Every course of action leads to the assumption of risk. Even a trip to the Jack In The Box drive-through can lead to death.
Regardless of what we do we cannot get to a situation of zero risk. A piece of ice from a plane could come through your roof.
In the legal world sometimes clients I work with get sued by counterparties with very weak cases. It happens all the time.
Just because something shouldn’t happen doesn’t mean it won’t. While this sounds like a downer it really is important for those of us that want to understand and control risk.
Risk Is Part Of Life
Because there is no risk free we know risk is part of life. With this knowledge we can make better decisions on risk.
Sitting in your house has risk. There could be a landslide, sinkhole or an earthquake. It’s not completely risk free.
Jumping out of an airplane has risk too. It’s a hole next level of risk compared to staying at home. Parachutes could fail, your altimeter could break or you could just misjudge things.
What really matters is the different of risk. Jumping out of a plane is through of as risky because the risk is much higher than the baseline: of doing nothing.
But in life and in business things are rarely so simple.
We Need To Understand Risk
Because risk, and life, isn’t simple we need to understand it better. One of the keys to be a success in business or, our careers, is to understand risks around us.
We especially need to understand hidden risks. My father, for instance, worked for Bethlehem Steel for 31 years. What he didn’t expect was how it would end. In their death spiral his job was eliminated, which he had on his radar. But soon after that his pension was cut significantly by the Pension Benefit Guaranty Corporation. Because he was relatively young he lost a lot of his anticipated lifetime income.
And it’s these double punches we often need to look for. What about losing your job because your employer fails and then finding that there are no jobs available in your industry? Not only are you out of an income but you are also going to have to retrain for a new job. Ouch!
We need to spend time thinking about our risk, how risks combine and which risks we want to take.
We Get To Pick Our Risk
As we move forward in life we do pick our risk. I hope most of us are doing it knowingly.
Many of you that are my fellow entrepreneurs know this calculation. We’d rather invest in ourselves and take the risk that we fail rather than take the risk that someone else’s risk hurt us. We feel that owning our risk is the key to survival.
And so goes it in business. We choose how much to rely on others: employees, customers, vendors, etc. Everything has risk.
And, as if often the case, not making a decision is a decision. Not dealing with risk is another way of assuming risk.
How many risks are you taking, right now, that you haven’t even thought about?
Some Can Take More Risk Than Others
Some people seem to love risk and don’t lose much sleep over. Others worry about the smallest of risks. There is no one right answer. Our world is made up of different personality styles.
Some see opening a new business as risky. Others see working for someone else as risky. Some jump out of planes and some buy Volvos (and if you are jumping out of plans and buying Volvos I really don’t understand).
The key is to know you. How much risk do you take?
How much risk will cripple you?
The Key Is The Management
Once you know where the risks are and what your tolerance for risk is things do get a lot easier. Now we can move on to managing risk.
Most risks can be divided into the parts of risk you can control and that you can’t. Having good legal paperwork for your company: controllable risk. Having someone randomly sue on an unfounded basis: uncontrollable risk risk.
For the controllable risks we want to know where they are and what we are doing about them. There are usually extreme measures we can go to to control risks that are non cost-beneficial. On the other extreme we don’t want to be knowingly taking extreme risks without some cautionary measures.
Making Better Decisions
So how do we make better decisions?
1) Start with the fact we have risk.
2) Work to understand the risk around you.
3) Remember what matters is the change in risk versus the baseline.
4) Understand our risk tolerance and the individual risk/reward.
5) Think of decisions in terms of risk and what you can tolerate.
6) Take the risks that make sense for you.
Don’t let risk paralyze you. But know there is risk out there. If you think of it – and fact the boogie-man in the closet – you’ll be a more effective manager of your life and business.
Now let’s take some worthwhile risks and have some fun!
I would love your thoughts on how you manage risk in the comments below.
By: The Our Shawn McBride, a speaker, trainer and consultant on The Future of Business, the host of The Future Done Right(TM) Show and long-time business attorney. If you want regular content on the future of business subscribe to get new blog posts from us here.
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