But there’s a common mistake most leaders make when confronted with risk. They think the goal is to either minimize it or eliminate it when in fact the goal is to harness it. You see, risk is actually a powerful force to drive an organization forward.
Risk brings things into highly-tuned relief. It provides a sense of value to the decision you are about to make. The safer the decision, the more likely you are to either stall, regress, or more slowly progress. The greater the risk, the more likely you are to leap forward. Putting a man on the moon was one of the riskiest things ever attempted in human history, but look at the huge number of technological breakthroughs that came as a result.
And here’s the kicker. The decision that seems safest may in fact contain the greatest risk of all.
So how do you harness risk? It’s really quite simple, but it takes courage and wisdom. When faced with a situation, you need to determine the ratio of gain to cost. In other words, what will I gain if I decide to do XYZ compared to the cost I will incur if I do or do not make that decision?
Let me give you an example. Recently a client was faced with a decision on whether to spend about $50,000 on a particular strategy. The gain was a potential increase in annual revenue of around $200,000 at most and in the worst case about $50,000. The concerns were whether they were going to make budget in the short term and whether they wanted to risk spending the money.
The worst case was a short-term wash, the best case a 4-to-1 return in the short term, and a probable 10-to-1 return in the long term, at minimum.
At the end of the day, the decision was made not to spend the money as they felt the safest course was to conserve budget and make the picture look better for the year. Their decision, however, was the riskiest decision as it will place a drag on the growth of their program and they will pay a high price in subsequent years due to donor attrition.
Now, before you get all high and mighty, what decisions have you backed away from to “play it safe”? We’ve all done it. Just remember, what seems like the safest course may just end up being the most costly.