The Impact of Risk Taking on Organizational Resilience
Risk-taking is necessary for an organization to be successful – particularly in times of great change.
(Hopefully, my colleagues in Safety and Quality functions won’t de-friend me for saying that!)
Risk-taking is not often a central theme and is frowned upon by many organizations and functions. Indeed, executives often confuse their Operations Safety, and Quality personnel when talking about the need to take risks. There are some areas where we should absolutely not promote risk-taking, and employees should be encouraged to proceed ONLY by the book! Following established procedures is critical when discussing meeting tight specifications or handling highly-hazardous materials for example. Control is paramount and lives may quite literally be at risk!
These sorts of examples aside, risk-taking is a critical trait for successful organizations.
Risk Evaluation
When properly managed, taking calculated risks helps us improve results by finding more effective, or more efficient, options. The key is that the risk must be a calculated one, where we reasonably can predict that the benefit will outweigh the potential consequences. Indeed, evaluating the risk must be carefully done if we suspect that the potential consequences could be serious. Fortunately, there are many methods and software packages available to help us evaluate risk.
Risk is often expressed as the frequency of certain outcomes multiplied by the severity of the consequences. Of course, this formula for all its simplistic attractiveness, is flawed in practicality as we generally do not know the outcome frequency! For many changes therefore, this leaves us doing a gut check on the potential consequences vs the order of magnitude of the frequency of the outcome.
For example, we know that a plane crashing into our building can happen and would have severe consequences, but calculating the actual frequency of such an event is quite problematic – so we just are left with the gut feeling that this is very, very unlikely!
Testing Hypotheses
If a change passes the ‘gut check’ risk review as having no, or very low, severe potential consequences, then likely we should simply try it if the potential benefit outweighs the cost or difficulty of implementation.
If a change presents some unsavory potential consequences, or is costly/difficult to implement, another path forward would be to test the hypothesis, or running a pilot study. Testing a potential path forward should be done in a deliberate and controlled manner, with fast-fail criteria, to ensure we do not waste resources. Only the smallest amount of effort and cost should be put into a path as is required to determine if it fails.
A common mistake of decision-makers is to put too much effort or cost into trialing a solution, and then becoming too attached to the work to drop it as a sunk effort if the path proves a failure.
Adaptability
Only by promoting a risk taking and hypothesis testing work culture, combined with curiosity and open mindedness, can we be prepared to handle severe environmental shocks to our business. In some such shocks, like the COVID-19 pandemic or the great recession of 2009, there are no established experts to tell us what to do. The leaders who have cultivated a team with curiosity, open mindedness, and a fast-fail trial mentality, will see their teams succeed!
