Risk and uncertainty

Why did the risk manager cross the road? (Or: let’s stop seeking risk)

The death this weekend of climber Ueli Steck generated not just tributes from fellow climbers, but also discussion in the media of risk taking, and whether taking risk was part of the enjoyment of climbing. It reminded me of two things: (i) a discussion on Radio 4 with a researcher who has looked specifically at risk-taking by climbers and skydivers, and (ii) people who use this concept of individual “risk seeking” to support risk seeking in corporate environments. But research shows climbers do not generally seek risk, and I believe risk seeking is not what we want to see in the corporate environment.

On the subject of organisational risk seeking I often return to this, by Andy Garlick:

…you will inevitably be exposed to risk to meet your organisational objectives.  It’s not something you want, but it’s a fact of life.  What is not relevant to organisations (as opposed to individuals) is any sense of risk seeking.  The level of risk is not something that can be dialled up at will and there is no such thing as a risk appetite in the sense that you actively seek to be exposed to some level of risk.

The point being made here is that it’s false to say that organisations seek risk (even if some individuals do it), so embedding “risk seeking” in policy is mistaken.

A corporate policy to seek risk may sound odd if you work outside a large organisation, but it happens and there is (to my mind) some reasonable motivation behind it: staff are too often afraid to make timely decisions, which in turn holds back progress, so guidance on how to “seek” risk is an attempt to counter that. This is typically part of the organisation’s risk policy and may be part of its “risk appetite”.

But what Andy says is that while some individuals may seek risk, it is not appropriate for organisations, and in general it doesn’t happen. People in organisations may take risks—i.e. make decisions that have some probability of severe negative consequences—but they do not go out of their way to put themselves in such situations (i.e. seek it), and they do seek to increase the probabilities of the negative consequences.

For example, if one company is looking to buy another it will conduct due diligence and debate the matter at board meetings. These are actions aimed at reducing the chance of too much negative impact.

Now let us return to risk-seeking in individuals, because our common examples of “risk seekers” is also mistaken. It turns out they don’t really seek much risk after all.

A familiar line to anyone with experience of risk management is that “we take a risk every time we cross the road”. This is true. But it is also true that we go to great lengths to reduce the probability of a bad outcome. For example, we go through a lengthy period of learning how to cross roads safely; we keep hold of our children near roads until they have shown they understand road safety; schools simulate road-crossings with their pupils; we build zebra crossings and pelican crossings for increased safety; we train car drivers. We do take some risk when we cross the road, but we do not seek it.

Similarly for skydivers and climbers. Why did the risk manager cross the road? The benefit seems clear: to get to the other side. Why did the risk manager jump out a plane? There doesn’t seem to be any clear benefit to that, and it might look like they are seeking the risk itself. But interviews with skydivers and climbers reveal something very different. They take safety very seriously; they train very seriously; they check their equipment carefully. In fact they do a whole lot of things specifically to maximise their control of the situation and to ensure the probability of a problem is very, very low. So low, in fact, that skydiving is safer than driving a car. They do not seek risk. What they seek is “being in the zone”, an escape from daily life, immersion in the moment, and something that puts their day-to-day concerns in perspective.

So when we try to encourage dynamism and effective decision making in our organisations let’s acknowledge that we may have to make decisions which carry probabilities of negative outcomes. But let’s also attempt to increase the probabilities of success, and let’s not actively seek risk. After all, pedestrians, climbers and skydivers don’t.

Photo by taquiman

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