Risk-seeking behavior has been stereotyped and templated over the years. We routinely associate rash and optimistic planning, aggressive schedules, seeking new gold, banking on unproven technology, and building for newer markets as some of the risk-taking behaviors. Unfortunately, we automatically assume that things that are non-risky are safe. But are they?
Risk is measured as a potential (and most often negative) impact on a project’s deadlines, cost or quality of its outcome due to uncertainty around a future event. To that end, we think buying a new house with a 20-year loan is a risk because we can’t predict and plan for what all could happen in next 20 years. Similarly, planning a multi-year project is a risk because so much can happen that impacts a project in those several years – technology gets obsolete, requirements change, key stakeholders move out and the new ones have a different expectation from the product, users figure out better ways to organize their needs, etc.
All this makes sense. However, somewhere our thinking has gone wrong from here. The opposite is risk is not safe – in fact, it is also risk. Let’s take some examples:
Leaving a job or starting out on your own might be risky – you might land in similar or even worse situations, or take forever to prove yourself in a new company, new culture, new people, new way of working, or your startup might just crashland after a few months. However, staying back in the job might also be risky – you might not learn and grow, or could get laid-off, or your company might go out of business!
Using a new unproven technology could be risky – you might be addressing a lot of first-time issues, or deal with more than a fair share of unknowns and uncertainties. However, sticking on to old technology could mean lesser opportunities for innovation, limitations on scalability and performance and eventually being the long-tail customer for some stone-age technology with no customer support, no upgrades and unavailable parts.
Creating a new drug in pharmaceutical sector is a typical risk of $600-800m over a period of multiple years. After all that investment, which essentially is a ‘sunk cost’, there is every risk of just writing-off entire hard work, effort and money, and start afresh. But, by choosing to not undertake that route, you might miss the opportunity to create a worldwide patent to produce, own and market that drug, not to mention, the lost opportunity to serve the mankind better.
If you promote people from within, you run the risk of making an old guard lead the change brigade – chances are that the old guard might not personally prefer that change, or is very comfortable with it. However, if you bring an outsider, he might lack the initial political or social capital to get everyone together on a page and lead such ambitious change.
When I read message boards on entrepreneurship, I find an almost universal contempt for people who are not entrepreneurs. The general thought is that this set of folks is too risk-averse. And then I think about folks who are investing their blood, sweat and tears into their jobs and pushing against organizational inertia to bring out changes that are just as challenging and sexy as what entrepreneurs outside those organizations are pursuing. Who says it is easy to pursue such innovative ideas in a large organization?
In fact, Peltzman Effect is a great way to explain how derisking something in fact creates a completely unintended effect by encouraging people to indulge in a behavior that again raises the risk, thus effectively nullifying the very intent to reduce risk in the first place.
So, I have come to believe that our thought process around what constitutes risk and what is considered as safe is essentially flawed. There is an inherent risk in every endeavor – and opposite of that is not safe. Opposite of that is just another type, shape and form of risk, and requires just as much, if not more, systematic analysis.
