Safety in Numbers?
Traditionally, the focus of risk management has been on “objective” measures, worked out through risk models and statistics. People sometimes think there is safety in numbers, that there’s reliability in numeric measurements. But these approaches can be incoherent and inconsistent.
We use the past to predict the future, which is like trying to drive forward using only your rear-view mirror. What happened in the past is often not a good predictor of what will come in the future, especially in the increasingly complex and rapidly changing world we live in.
Another issue with taking an “objective” approach to risk is that it ignores the human side. The statistics are all based on human behaviour. Take again the example of a risky road; If there were no people driving on it, there would be no incidents. Our behaviours shape the statistics, not the other way around, so we should focus on the human component of risk.
The Human Side of Risk
Psychologists have been helping to shift the focus in risk and decision-making towards individual differences and personalities. We are now at an exciting place where we can open doors to previously unexplored areas of risk.
We used to think that people were on quite a straight-forward continuum, from risk-averse to risk-taking, but this is not the case. The way that individuals approach and manage risk varies considerably. Some will be enticed by on-the-fly decision making and the excitement of risks. Others prefer to avoid uncertainty through systematic planning and to not go into anything unprepared. Some people experience strong emotions in relation to risk, being passionate and invested in projects but fearing failure, while others remain calm, composed, and unemotional when faced with risks.
All these different approaches have upsides and downsides. As a species, we have worked together in groups to balance each other out. The more daring and adventurous types have benefitted from the conscientious risk assessment of the more wary and cautious types, and vice versa.
This is also the case in business, as every decision involves weighing up the potential benefits and costs. If we never take risks, we miss opportunities, but if we constantly take risks, we do not manage and avoid the negative consequences. The key to effective decision making is understanding and appreciating diversity, to maximise the benefits of individual differences.
Change and Agility
Understanding and managing risk is crucial for our survival; as individuals, as a species, and in organisations. In this digital age where companies are constantly dealing with change, uncertainty, and ambiguity, it is increasingly important to be agile. A company’s mindset around how it makes decisions and takes risks is hugely important to its longevity. However, if a corporate culture is left to develop organically over time, the changes will often be too slow. Great decision-making cultures are created intentionally and proactively.
When companies are afraid to take risks, they are liable to fall behind or fail. Ideally, there should be trust and a growth mentality, where learnings from failures are celebrated. As Ariana Huffington put it, we need to understand that “failure is not the opposite of success, it’s part of success.” This allows innovation and more agile decision-making. It can be tricky to strike the right balance between risk-taking and careful consideration of potential problems, but research has shown that embracing risk is key to organisational success in the digital age.
We make thousands of decisions on a daily basis, and all of these involve some element of risk. With such an abundance of data, change, and imperfect information, to consider, we may benefit more from turning our attention to our individual personalities. Understanding the human side of how we make decisions, and being aware of this in our teams and organisational contexts, can allow us to adapt with agility to our diverse and ambiguous environments.
If you are interested in learning more about the human side of risk, decision making, and its impact on agility and diversity, we have a personality assessment called the Risk Type Compass which provides a framework for just that.
This blog is adapted from an article that was published in the Irish Examiner by Julie O’Sullivan.