How Do You Harness Risk?

One thing inherent in leadership is risk. And how leaders view and handle risk has everything to do with how successful they are.

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. Because risk is something you can never avoid, and when properly understood it 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’re 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.

Think about it. 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 be the most dangerous of all as it takes the value risk has to offer and conceals it.

So how do you harness risk? It’s really quite simple, but it takes courage and wisdom.

First, when faced with a situation, you need to determine the ratio of gain to cost. In other words, what will you gain if you decide to do XYZ compared to the cost of not doing XYZ?

Second, you need to determine what is really at risk should you move forward. This means having a clear understanding of what the total loss would be should your decision end up failing.  But this also means an honest assessment of what is at stake should you not move forward.

Risk is actually a fundamental component of good stewardship.  In the parable of the talents (Matthew 25:14ff), Jesus honors the two servants who took what the master entrusted to them and put it to work, doubling the value.  By contrast, Jesus roundly condemns the servant who buried what had been entrusted to him, and returned to the master the money with no return.

Yes, a central driver of stewardship is risk.  Because there can be no gain without there being risk.

Let me give you an example.

A few years ago, a client was faced with a decision on whether to spend about $50,000 on a particular donor acquisition strategy. The gain was a potential increase in first year revenue of around $200,000. 

The risk to spend the money was whether they were going to make budget in the short term and did they want to risk spending the money if they weren’t.

The worst case was a $50,000 loss. 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 most dangerous decision, as it slowed growth and they’d pay a high price in subsequent years by not ensuring they were replacing lapsing donors with new donors.

Playing it safe in the short term seemed safest, but by avoiding and not harnessing risk, they actually made a much more dangerous decision.

Now, let’s get honest: 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 costliest.

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