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Risky times, risk perception and the sabotage of our own inner kluge

I’ve been writing a lot about risk over the last year or two. My trusty little old Oxford dictionary defines risk as ‘hazard, chance of bad consequences, loss etc; exposure to mischance’ – but also as ‘venture on, take the chances of’.

The online Business Dictionary defines its general meaning as ‘probability or threat of a damage, injury, liability, loss, or other negative occurrence, caused by external or internal vulnerabilities, and which may be neutralized through pre-meditated action’ and its workplace meaning as ‘product of the impact of the severity (consequence) and impact of the likelihood (probability) of a hazardous event or phenomenon’.

Interestingly, most of the definitions of risk are financial – something I’m sure was never a consideration in the risky business of human evolution.

Answers.com offered ‘the possibility of suffering harm or loss; danger’, ‘a factor, thing, element, or course involving uncertain danger; a hazard” and ‘exposure to possible harm, loss, or injury’ and ‘to put up as a stake in a game or speculation’ and ‘a venture depending on chance’.

Suggested Thesaurus equivalents at Answers.com include hazard, danger, peril, menace or jeopardy; bet, gamble, stake, venture, wager, chance and speculate; or venture and adventure.

We can see that the negative connotations of risk can blur into some that sound rather more exciting and positive!

Our own perceptions of and attitudes to risk influence the balance that businesses need to strike between timidity and inaction resulting in stagnation, all the way along to irresponsible gambling resulting in failure.

Somewhere in the middle is a path that combines common sense and creativity that is realistic yet strikes the sweet balance somewhere between prudence and innovation.

Risk is a fact of life – and it has upsides as well as downsides. We are always subconsciously weighing the odds all the time in all spheres of our life. Some risks can pay off hugely while others are obviously foolhardy – and few people will exactly agree on which is which.

We need to know what we’re up against, here: our inner kluge. Gary Marcus, professor of psychology at New York University, says the human mind is a kluge – an engineering term for ‘a solution that is clumsy or inelegant yet surprisingly effective’. Our brains are clumsy things, he says – but they handle the tasks life throws at them pretty well. Yet while capable of great things, the haphazard and opportunistic construction of the brain means most of us have a terrible memory and generally poor will power – and often behave irrationally.

How does this manifest? Marcus claims we are much more the ‘rationalizing’ than the ‘rational’ animal: we constantly sabotage our long term goals by poor short term decisions (think getting fit, rich or thin!) then justify them with a rash of retrospective rationalizations. And, he says, we’re much more likely to remember to buy toilet paper when we are in the bathroom than when we’re in the supermarket.

How can we outwit our inner kluge? Scenario-based contingency plans related to risks that threaten our goals are a great help in everyday life, says Marcus: ‘If I see chips, I’ll avoid them, says the dieter’. We can routinely use them in business and environmental management as well: ‘If I see a problem with an environmental control, I’ll fix it or call someone’.

This relates to what David Apgar calls our ‘risk intelligence’ or risk IQ. Apgar insists that risk intelligence is learnable: he says that our ability – as an individual and a company – to understand and learn about risk, compared with that of others, can make or break a project. Nearly everyone can work out how to mange an identified risk – but people or organizations that are better at identifying risks have ‘better raw material in the form of information for managing’ them and this can lead to real competitive advantages. He insists that it is possible for us to compare our abilities and use the information to learn how to make better risk decisions and project choices.

Choosing to become a learning organization via the approaches to risk management outlined by Gary Marcus and David Apgar will allow each of us to develop particular strengths: some of us will become great at assessing risk, others at managing it, and others about communicating what we learn so as to improve our business performance.

Remember – wherever there is a risk, there is always an opportunity to work smarter, do better, meet a challenge, learn something new, build an unbeatable team and have more fun!

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