What would you do when faced with a situation that poses a risk to you personally or professionally?
Are you risk averse – preferring to deal only with certainties or do you plough ahead and accept whatever happens as a result?
Neither approach is particularly effective.
At a talk at Sheffield University Sir Peter Middleton, a former Chancellor of the University and Group Chairman of Barclays, made the comment that outside of number theory, everything is probabilistic.
And that is something that is quite hard for us to get our heads around – it’s just not the way human brains are wired.
Take the army life, for example. That is a profession where sticking your neck out could quite literally result in a very unpleasant outcome.
If you were a risk averse soldier, would you ever go first around the corner?
The US military, which helpfully publishes a lot of its leadership training material, talks about the concept of prudent risk in its Mission Command Doctrine.
Prudent risk is defined as “deliberate exposure to potential injury or loss when the commander judges the outcome in terms of mission accomplishment as worth the cost”.
It’s not gambling, rushing in hoping to win big without thinking through what might happen to your team if you fail.
Instead, you weigh things up, in essence working out the probabilities involved, and make a prudent decision.
Take another field – investment management.
Risk is defined in rather arcane terms because it sounds better when you try and sell it to clients. Volatility or beta sounds much more knowledgable than saying some days prices go up and other days prices go down and most days there isn’t really a clear reason.
Warren Buffet talks about risk in simpler terms – he defines risk as the potential for loss.
If you buy a particular stock, or do a certain transaction, what are the chances that you will lose money on the deal?
If you only deal with certainties, and keep your money in cash under the bed, you returns will be low.
If you go for exotic and complex deals that you don’t understand but are assured are “no-brainers”, you may strike it rich, but in many cases you will not.
Remember the old saying – when a person with money meets a person with experience, the person with experience ends up with the money, and the person with the money ends up with the experience.
The key to succeeding in investment is taking prudent risk – taking action when the opportunity outweighs the cost and you have a greater probability of success than failure. And then doing that again and again.
When it comes to personal or business success, the same approach applies.
You can’t replace personal initiative, responsibility and cooperation in the workplace with automation. It’s hard to get a robot to do anything outside the limitations of its programming.
Instead, businesses succeed when the people in them assess situations clearly, weigh up the pros and cons and accept that any significant decision is going to involve risk – and take the crucial decisions where the opportunities outweigh the costs.
That does mean sometimes sticking your neck out.