Risk is one of those words designed to set people’s teeth on edge. The mention of risk to some people is enough to have them running for the hills. The reality is that life without risk is not possible and we all need to find our tolerance levels.
Risk can come in many forms. It can be physical risk such as that taken by people who climb mountains or jump out of airplanes or ride fast motorcycles. It is also present every time we get in a car, cross the road or walk down some steep stairs.
Risk can be financial risk such as when we make investment decisions, sign contractual agreements or make decisions that can affect our income in some way or another.
Risk can come in an emotional form such as when we develop new friendships, commit to long term relationships, or through our connection to anyone else … because we can’t control their actions or emotions.
So … risk is present in our lives every day and we all have our own levels of tolerance to risk. As part of that tolerance we learn to take steps that reduce, or mitigate, the risk as much as possible but while still being able to do things we need to do.
For me when I ride my motorbike I know that my safety is solely my responsibility. I need to be aware of everything around me, I need to anticipate the actions other drivers might make and be prepared to react quickly. I could choose to not ride the bike … that would be certainly be much safer, but I would miss out on one of the joys in my life.
Risk is omnipresent in the business world, and we try to mitigate as much as possible with good contracts, good business processes and by making sensible decisions. We try to understand all of the things that MIGHT go wrong and then decide which are important and which we can live with. We might look at a business situation, recognize that a weird set of circumstances would cause the company to go out of business but decide that the potential for that to happen is so far fetched that we do it anyway. Another company might choose to walk away. A publicly traded company might have no choice to but to walk away. Success in business does not come from being averse to risk!
In our personal lives we might choose to not go looking for a partner because we are afraid to commit, or afraid to get hurt and yet if we are not willing to take that risk then we also accept that we will not find that partner. Great relationships don’t come without a cost and yes the failed relationships hurt … but for most people the win is worth the risk.
When we invest in our RRSPs or in a start up company we need to understand how much we are prepared to risk and make a decision about whether we could live with the worst case scenario … or whether we need more certainty in our investments. There is always the option to stick our money in our mattress, but even that has an element of risk!
Every day we all make these decisions at some level whether it be conscious or sub-conscious. The process goes some thing like this …
1. Understand the risk.
2. Look at all of the options.
3. Look at ways to mitigate the risk.
4. Decide how much risk is acceptable.
5. Make the decision.
When I am looking at business situations I get input from my advisors, legal, accounting, sales, other management and weigh up the options before making a decision. Understanding the risk is important however just because there is risk it doesn’t mean you should avoid it … it just means you go into the situation with eyes wide open and hopefully with contingency plans.
One of Bob’s rules was … The risk of riskless living, is the greatest risk of all! He may have adapted it from robin Sharma’s “greatest risk is riskless living”.
Add a little more risk to your life … you certainly don’t want to be on your deathbed wishing you had (a) tried something, (b) done something, or (c) achieved something, that was achievable but you were too cautious!