The Joy of Risk

By Steven J. Thompson - CEO Johns Hopkins Medicine International

One American military leader, already having lost most of his many battles, persisted in driving his troops to attack in situations that everyone else regarded as lost causes. A leader destined to go down in history as a failure? Hardly. It was George Washington.

Business leaders today could take a lesson in risk management from General Washington, but it's not the one you might think. Washington was never reckless. He studied risks carefully, running unapologetically from battles likely to lead to catastrophic defeat, while throwing himself and his troops into battles that he saw could prove decisive and were more winnable than others assumed, as when he crossed the freezing Delaware to attack--and defeat--the British in a blizzard.

Managers sometimes mistakenly think their job is to avoid or eliminate risk. That's easy to do: Just veer away from all undertakings that aren't sure things, or that you don't understand well. I can absolutely guarantee you the result of that strategy will be mediocre performance, at very best. Innovation, speed, and bold action are all associated with risk--so if you're avoiding risk, you're avoiding some of the very qualities your organization needs to excel or perhaps even just survive.

Consider some common risk-management misconceptions:

  • Confusing unfamiliarity with risk. Leaders often hesitate to charge into new markets, or novel challenges in existing markets, simply because they don't understand them as well as the situations they're used to operating in. But new, unfamiliar conditions may in fact be no more risky, or even less risky, than the familiar ones--it just takes a little time and effort, and perhaps a few initial losses, to get up to speed on them. My own organization learned all about that when we pioneered the industry of collaborating globally on large healthcare delivery projects.
  • Treating uncertainty as risk. It may seem self-evident that when you can't tell how a situation is going to turn out, it's risky. But that's not necessarily true at all. If most of the likely outcomes aren't terrible, there isn't excessive risk. Careful analysis can help leaders distinguish risky uncertainty from the unrisky version.
  • Failing to manage risk. Just because a situation may be viewed as highly risky doesn't mean it is likely to stay that way. Before deciding to avoid it, it's worth trying to figure out how to whittle away at risk, to manage it, perhaps by sharing it with partners, by setting up early-warning mechanisms, by bringing in people with more experience and expertise, or through different forms of insurance.

Even after accurately assessing and effectively managing risk, a new situation may still carry a substantial level of risk. But good leaders don't hide from real risk. In fact, you can't avoid it. There's almost certainly risk in everything your organization does right now. If there were a way for companies to make money without risk, everyone would flood into that business. You just may not see what you do as risky, because the risk is well understood and managed.

It's the new risks that seem scarier. But that's where the reward tends to be, too. High-performing leaders and organizations almost always get ahead largely by doing a good job of deciding which new risks should be embraced, and which steered clear of. It usually boils down to this key question: Is a big win much more likely than a serious problem or loss?

A good way to fall short as a leader is to lack the courage to forge ahead when the answer to the question is yes. Or even worse, to not ask the question at all

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