Reason 3 of ‘15 Top Reasons You’re Managing Not Leading‘ explains the importance of taking risks. Not only do you need to take risks for your business to be successful but you need to encourage your team to take risks too. A business that doesn’t take risks can become stagnant and very quickly lose to competitors in the market.

However before you can comfortably start taking risks you need to understand how to do it properly. This post will explain the differences between taking a risk and a gamble so that you don’t get caught out!

In the military it’s only by taking risks that we can gain the advantage over the enemy. But at what cost? It’s my job to make sure i’ve weighed up the cost vs reward. My boss says that he’ll always encourage us to take risks so long as we can justify our reasons. This should be the same in your team. As a leader you’re responsible not only for achieving results, but responsible for any consequences.

Don’t You Dare Take A Gamble – You’re Better Than That!

As a leader I never tolerate gambling and neither should you. Anyone can gamble, it requires no skill, no knowledge, no experience, only luck. Well you’re not a leader because you’re lucky, you’ve got to where you are because you have all the traits listed above.

Are you really going to rely on luck to get you to where you need to go?

Let’s consider 2 examples of a gamble. The first will be based on a business scenario and the second on my military experience . Later on in this post i’ll come back to these scenarios and explore how you could take a risk rather than a gamble.

Example 1: Investing in a new employee

Business has been going ok recently but as the leader you feel you’d benefit from a new member of staff. You’re not sure if the extra member of staff will increase your team’s productivity enough to pay their salary. But you ‘might as well take the risk’. This isn’t taking a risk, this is a gamble!

Example 2: Clearing an enemy village

I’ve been given the mission to clear (remove) the enemy from a village they’re known to have occupied. In this village there are 3 large buildings but the enemy are only using one of them as their headquarters. Now due to the size of the buildings i’ll need to use my whole team even to clear just 1 building.

The only additional complication is that if I attack the wrong building I will lose the element of surprise and would give the enemy a chance to prepare to defend their position. I need to catch them off guard!

If I were a leader that took gambles I can relax. No planning required! I’ll pick 1 of the 3 buildings and cross my fingers.

This is a gamble!

How to Take Risks

Assessing risk is a calculated way of considering the threats or opportunities presented by doing something. When you take a risk you consider the benefits, the consequences and the likelihood of it going either way. In the military we like to turn the complicated process of considering risks into a simple formula.

Leadership Take Risks Don't Gamble

You assign a numeric value to the consequence of something happening and to the likelihood of it happening. You can use any variety of values but I tend to prefer to use values such as those listed below.

 

 

 

 

 

It’s important to remember that a consequence can either be an extreme positive or negative – this works for both threats and opportunities! Once you’ve decided the values put them in to the formula (multiply them by one another) and you’ll have a value.

To keep things simple you could also use the table below.

Once you have your final ‘Risk Value’ you can use it to compare certain courses of action.

What To Do With The Risk

There are several things you can do once you’ve identified the risk which are listed below.

  • Tolerate – You may decide that the risk is tolerable and whilst you’ve noted it you will do nothing specific about it.
  • Treat – You may decide that the risk is too high and therefore put in mitigating measures to try and change the likelihood or consequences of something happening.
  • Transfer – If you feel that the risk is ‘above your pay scale’ then transfer it up. Ask someone senior to you to consider the risk. They can then decide to tolerate, treat, transfer or terminate the risk.
  • Terminate – If you decide the risk is too great then you can simply get rid of it. An example of this would be if you identified that a particular supplier is likely to miss a payment with you and the consequence of this is high, you could just find a new supplier.

In the military we use the final risk value to determine at what level that risk can be tolerated. For example to take an extreme risk (value 20-25) would need signing off at a very high level. More frequently however the severity of the risk will determine what ‘treating’ factors need to be introduced to limit either the consequence or likelihood of something taking place.

It’s important to frequently reconsider your risk assessment too! Circumstances can change which could alter your final risk value.

In a world that is changing quickly, the only strategy that is guaranteed to fail is not taking risks – Mark Zuckerberg

Let’s consider the examples from earlier and use this formula to assess the risk.

Example 1: Investing in a new employee

When considering employing a new team member there are a series of opportunities and threats presented by the option. When doing the risk assessment you find that the consequence of the employee doing well or badly is large as you only have a few employees in total. You also decide, based on your interview, that you feel the likelihood of your employee performing poorly is moderate. This has given you a total risk value which you could compare to other candidates. It also gives you the opportunity to:

  • Tolerate the risk (hope for the best – but at least it’s been recognised).
  • Treat the risk (assign a mentor to reduce the likelihood of poor performance).
  • Terminate the risk (don’t employ the candidate).

Example 2: Clearing an enemy village

In this instance I would try to gather as much information as possible about the enemy and about the village. By doing this i’m potentially decreasing the likelihood of me picking the wrong building. The point with this is that i’ve done everything I can to reduce the chance of me picking the wrong building. At that point I must then decide whether to tolerate the ‘residual risk’ or terminate the operation.

Have Your Say

I’m curious to know at what level you let your team or employees take risks? Is it encouraged? Is even the lowest subordinate free to take risks? And does it work for you? Let me know in Your Thoughts or comment below and as always i’ll reply and may even elaborate on your thought in a future post.

-The Military CEO