How do you take calculated risks?

How ready are you to accept that despite evaluating your risk, if it fails, it should not affect you or your position (solvency)?

The reason why we need to start with goals, be it in personal or business situations, is because any time we take actions toward implementing those goals, we venture out into the unknown and encounter some degree of risks. It’s also important to understand your starting point. In a business situation, it could be evaluating your financial resources, workforce capacity and regulatory limits. Similarly, in a personal setting, you may start with assessing your savings, age, health, and support group.

In assessing the situation, it’s useful to understand risk from the points of view of potential impact to the business and of course the probability of the occurrence of the risk event.

Nobody can predict the future, and we must make some assumptions while assessing risks. Companies follow industry methodologies to assess likelihood and severity of a risk to identify inherent risk – a level of pure risk that exists without any mitigating controls. Next, they assess available controls in place (resources, procedures, actions) that can mitigate the impact of inherent risk. That leads you to residual risk – a degree of risk that still remains after controls are applied. Use the same inherent-residual risk approach in personal life situations. The initial assessment of risk might be frightening, but as you identify reliable controls around it, the situation might change.

Now that you know your residual risk, it is time to make a decision on how to proceed. Do you want to move forward with your actions despite the presence of risk and accept it? Do you rather pull out and avoid risk altogether? Would you prefer to transfer and share risk with other parties? Those are the questions that you need to address based on your risk appetite and tolerance.

After making a decision and proceeding with it, look back to assess if that was the right estimation of a risk level and the right response to a risk. Develop metrics and KRIs that will help you to monitor progress and correct a course whenever needed.

It’s particularly important to seek feedback from control owners. Those could be both internal and external parties. For example, an insurance company can provide compensating controls to potential risks. Ask for constructive and candid feedback regarding the strength of controls. Your risk mitigating strategy is only as good as your control environment.

A framework to assess the effectiveness of risk mitigating actions is critical. This is enabled by ensuring you have the right persons in the room and the appropriate cadence for collaboration.

Achieving desired results without emergencies is the best reward. Don’t rest on your laurels, though. Learn from both success and failure lessons to continuously hone your risk management instincts and skills.

It’s impossible to achieve anything meaningful in life without some degree of risk-taking. Learning how to assess threats and take the right level of risk in pursuit of desired outcomes is one of the most valuable skills in business and life.