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Safest Isn’t Always the Best! Leaders Manage Risk

“If you risk nothing, you risk more.” –Anonymous

This statement encapsulates what you should do with risk: it shouldn’t be avoided. Rather, manage it carefully. Thinking clearly is often not possible for people who face a risky situation. However, an essential quality in good leaders is that they take well-managed, calculated risks when required and show their team how to do the same. How do they manage that, and, more importantly, how can you manage it?

The answer: use a risk-management model that allows you to take calculated and educated risks instead of haphazard ones that potentially lead to disasters.

Consider risk as the probability of something detrimental happening to the goal or team member against the negative consequences of that action. Now, plot a graph with probability on the X-axis and consequences on the Y-axis and divide the graph into four quadrants. The lower left quadrant, with low risk probability and low negative consequences of that risk, represents a green area; this typically indicates a “go” signal.

A leader not only manages risk, they teach others to do the same. (Tweet that)


Probability vs. Consequences - Risk Management

Probability vs. Consequences – Risk Management

The upper left and bottom right quadrants, indicating high risk probability and low consequences, and low risk probability and high consequences respectively, are considered yellow areas; these indicate that you should “proceed with caution,” with a mind to stopping when required. If you are in these zones, it is wise to proceed only if you have a safety net or backup plan to deal with a worst-case scenario.

The upper right quadrant, which indicates high risk probability and high consequences, is the red area, typically indicating a “no-go” area. This is where disasters can happen if you don’t know how to manage risk. However, that doesn’t mean you can’t go into the red zone at all. The trick here is to make it a yellow area activity before you proceed.

But how do you do that? This is where well-planned backups and risk-management strategies are crucial For instance; expedition guides can move a red area to a yellow one because of their experience and training in a particular situation such as rock climbing. Similarly, if you need a surgical operation, you won’t ask your wife to perform the surgery on the kitchen table. You go to a surgeon. This, then, is how you turn red areas into yellow ones.

So, the next time you are facing a situation that has a high component of risk inherent in it, use these tools well to manage that risk. How have you taught risk management to your team (or teenager)?