The High-Risk Checklist Part 1: Bridging the Gap Between Innovation and the High-Risk Sledgehammer.

Why is it that we often approach personal risk with optimism and balance, yet grapple with the idea of embracing risk professionally?

Consider this: many commit to a 30-year loan, taking on a debt 14 times their annual income given the average median salary of $90,371 and a house price of 1.3 million, all while juggling variable interest rates between 4-7%.

When you write down the commitment to this personal decision to buy a home sounds terrifying! Yet you always see a young happy couple in front of a sold sign, thinking they have made a decision that couldn't possible be a bad one!

Contrastingly, in the corporate world, it might take three months of deliberation just to spend $30,000. Why such disparity?

Business, by its very nature, is fraught with risks – whether they be legal, strategic, reputational, operational, financial, or human-centric. In today's fast-paced corporate environment, where prompt decisions and innovative leadership are essential, why are we, the corporate citizens, conditioned to view risk with apprehension instead of as an avenue for opportunity?

We’ve all been there. Amidst the exchange of ideas in the board room, a revolutionary concept is presented—one that promises to redefine not just the company's position but also the daily experiences of its employees. However, just as the idea begins to take shape, it's quickly discarded, labelled as "too risky" or "not aligning with our risk profile."

Over the next series of articles, we'll unravel the intricacies of risk—it’s essential nature, and the crucial balance executives must maintain to ensure risks are managed and measured efficiently.

The Duality of Human Nature: Craving vs. Fear

Human disposition is governed by two opposing forces: the insatiable desire for what we don't have, and the fear of losing what we do. This duality often manifests when individuals are confronted with things they don't understand or don't wish to invest time in understanding.

Young and budding executives can sometimes be overwhelmed by these sentiments, struggling to evaluate risks without personal bias. This lack of impartiality stems from the fact that each decision-maker comes equipped with a unique set of experiences that inform their judgments. When such bias takes precedence, we find innovations stifled and ideas prematurely discarded—a metaphorical "risk sledgehammer" demolishing potentials.

Dissenting Voices from the Past

When contemplating the path of innovation, remember that many ground-breaking ideas, concepts or innovations faced scepticism:

• “Apple is already dead.” - Nathan Myhrvold, former Microsoft CTO, 1997
• “I think there is a world market for maybe five computers.” - Thomas Watson, president of IBM, 1943
• “Television won’t hold on to any market it captures after the first six months. People will get tired of staring at a plywood box every night.” - Darryl Zanuck, 20th Century Fox, 1946

Taking risks isn't everyone's cup of tea, more so when a lot is at stake. It's not surprising then that in many organisations, the responsibility of making high-risk decisions largely falls upon top executives. These individuals are tasked with the immense responsibility of weighing the company's current status against its future aspirations, all the while navigating the potential risks and rewards of each path.

Joy of Gain Vs Fear of Loss

The responsibility of every executive, from the CEO to the CFO, COO, and CPO, is to ensure the smooth functioning of their respective departments. The crux of their role lies in adept leadership, precise decision-making, and anticipating potential pitfalls.

Amidst these challenges, two pivotal cognitive biases – loss aversion and decision fatigue – emerge as significant hurdles. Loss aversion, a cognitive bias, underscores the psychological impact of loss, which is often perceived as twice as potent as a gain. To put it plainly, the distress of losing $10 is far more intense than the joy of finding the same amount. On the other hand, decision fatigue pertains to the diminishing quality of decisions made by an individual after a long session of decision-making.

?Projections Vs Instinct

In my professional journey, I've identified three cornerstone observations about executive decision-making:

1. Although gut feelings play a crucial role, they shouldn't be the only basis for a decision.
2. The likelihood of success amplifies when one can identify potential pitfalls and seek insights from trusted sources.
3. Every decision, once made, will have consequences – some foreseeable, others not. Being prepared for both is essential.

As we navigate the complexities of risk, understanding the motives, role responsibilities, and inherent discomfort associated with high-risk decisions is crucial. History has shown us the ramifications of missed opportunities. Imagine a world where Nokia remained a furniture brand, never venturing into telecommunications.

Inhibiting innovation with the risk sledgehammer can change the course of history. Our collective future rests on the boldness of today's decision-makers.

In subsequent parts of this series, we'll delve deeper into marrying business risks with organisational roles, the perils of evading decisions, and the ever-present challenge of prioritising tasks and managing high-risk decisions efficiently.