10 Ways to Embrace Positive Risk-Taking
The Oxford Dictionary defines risk as “a situation involving exposure to danger” or “the possibility that something unpleasant will happen”. In common terms, we usually think of risk as the potential for undesirable consequences, whereas the opposite can also be true. Entrepreneurs undertake risks to achieve benefits. We think of them as positive risk-takers. In reality, some studies suggest that entrepreneurs are not any more disposed to taking risks than non-entrepreneurs but simply perceive risky situations more optimistically and are therefore more willing to undertake projects that others consider too risky. An optimistic attitude towards risk can be beneficial in terms of developing new products or starting new enterprises.
Sink the Boat
Effective risk management involves a balance between controlling downside risks without losing the potential benefit associated with the proposed activity. In a perfect world, one would be able to distinguish between so-called “sink-the-boat” risks associated with pursuing a false opportunity, and “missing-the-boat” risks that result from by-passing a genuine opportunity. The objective is to be risk-rational rather than risk-averse or risk-reckless. A risk-averse organization is unlikely to achieve its full potential, and may inadvertently set itself up to fail, since risk cannot be eliminated entirely.
ACOA uses neutral definitions of the term “risk” based on two sources:
- Risk is the combination of the likelihood of and event and its impact (Source: International Standards Organization).
- Risk refers to uncertainty that surrounds future events and outcomes. It is the expression of the likelihood and impact of an event with the potential to influence the achievement of objectives (Source: Treasury Board of Canada Secretariat).
The first definition reflects the mathematical statement that risk = probability x consequences. The second more broadly stresses the potential for risks to influence the achievement of pre-defined objectives and outcomes.
Disenchantment and Disengagement
Since risk outcomes can be positive, negative, or neutral, it is worth considering risk neutral decision-making. A risk neutral decision-maker is indifferent to the risk involved in an investment and is only concerned about expected return. In the context of federal agencies, this would mean that if specific application criteria were met, the risk associated with the project would be left entirely in the hands of the recipient, and the government staff would devote little effort to monitoring the risk associated with a project as it unfolds. It’s clear that a totally neutral attitude towards risk is not ideal, although some suggest that since it is the funded organization that assumes the bulk of the risk, the funding organization should tend towards risk-neutral decision making rather than risk-averse decision making.
Funding organizations attempt to find the right balance between two choices:
- Taking a narrow and restrictive approach in favour of risk avoidance, with the likely result being disenchantment and disengagement of those who need and use the services; or
- Being more proactive and constructive through an appreciation that calculated risk-taking motivates and benefits everyone.
A New Mindset
There are several ways of using a positive risk-based approach for maximizing opportunities rather than focusing exclusively on mitigating risks of failure. Positive risk-taking involves plans and actions that reflect the positive potential and stated priorities of the service user. Positive risk-taking requires recognition that:
- New activities always entail some risk, and nothing new can be accomplished if one always takes a conservative approach to risk.
- Positive risk-taking is not negligent disregard of the potential risks. Nobody, especially service users, benefits from allowing risks to play their course through to failure.
- Positive risk-taking is about giving people access to opportunities and genuine empowerment through collaborative effort and a clear understanding of the relative responsibilities of respective parties.
- Positive risk-taking involves a realistic assessment of viability and costs, taking into account best practices and what has worked in similar situations.
- Positive risk-taking is based on establishing trusting work relationships. It involves understanding the consequences of different courses of action, and making decisions based on the range of choices available, supported by adequate and accurate information.
- Positive risk-taking is based in the 'here and now', influenced by our knowledge of what has worked or not worked in the past, and why. The value of historical lessons learned lies in understanding the root cause of what happened so that decision-making is not driven by the stigma of the event itself.
- Positive risk-taking is about knowing that support is available if things start to go wrong, as they occasionally do for all of us.8. Positive risk-taking can sometimes be distinguished by the observation that higher short-term risk may need to be tolerated and managed in order to achieve longer-term positive gains.
- Positive risk-taking may include setting explicit boundaries to contain situations that may develop into potentially adverse circumstances for all involved.
- Positive risk-taking may mean taking the risk of withdrawing services that are inappropriate to needs, or which serve no significant value.