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What’s your risk appetite? Take a simple test to rate your own and that of your organisation…..

Sustainability guru Bob Willard offers help to environment and sustainability professionals whose executives are pushing back on sustainability and asking, “Why should we bother with all this environmental and social stuff?”

Bob says what they really want is answers to the ‘Big Three “Whys“’ executives must ask of any value proposition – not just sustainability initiatives:

  • “Is it the right thing to do?”
  • “Is it the financially rewarding thing to do?”
  • “Will bad things happen if we don’t do it?”

These are the top three of ten “whys” any executive or board should ask, but Bob notes that answering a simple “Yes” to those questions may need a detailed cost-benefit analysis to back it up.

This assessment is essentially about risk and return – the topics of my next two workshops:

  • Liability to Viability: the risks the environment poses to businesses
  • ROI: the financial return on investment on environment and sustainability training.

Risk starts with understanding your personal and organizational risk appetite.

Download my short, humorous risk appetite self-assessment chart and work out your score on a scale across four risk zones:

  • stagnation and vegetation: extreme risk-aversion and the risk of doing nothing
  • prudence and common sense: a sound appreciation of risk as a sensible business tool
  • nothing ventured, nothing gained: risk perception as a creative business tool
  • delusion and denial: the fool’s heedless path to inevitable failure.

Why is this important? Because lots of people are assessing your risk appetite.

Who’s watching?

In August 2014 Standard & Poor’s unilaterally lowered a major New Zealand company’s credit rating from A+ to A because of a new “financial risk appetite that is more aggressive than we had factored into the previous … rating”.

This has major knock-on effects on the company’s book value, share value, dividends, ability to raise funds from banks and investors, and even on the cost of insurances.

Wetware worries

Our psychological drivers and more or less conscious appetites around risk (our own “wetware”) can impair our decision-making. Negative flow-on effects identified by Oxford Risk and Gary Marcus include:

  • failing to take any action
  • delaying making decisions
  • relying on others to make decisions
  • being influenced by conscious or unconscious bias regardless of supporting evidence
  • making misguided or unconscious assumptions, or not questioning explicit assumptions
  • lack of objectivity
  • inflexibility.

People also have different preferences when balancing or overlooking considerations such as:

  • gain vs. loss
  • cost vs. benefit
  • threat vs. opportunity
  • risk vs. reward
  • short-term vs. long-term considerations.

Known and unknown risks

So what’s happening here is that we are grappling with known and unknown risks out there in the natural, social and business worlds – and also in our inner world of the mind, our world views and our emotions.

Formal risk management standards and procedures support a coherent approach that addresses individual and organisational views and puts in place proactive and reactive systems to identify and manage risk.

Despite this, as Kimberley Wiefling observes, “The #1 mistake in project management is to identify risks but do nothing about them.”

That’s why my Risk workshop, Liability to Viability, focuses on our own internal “wetware” rather than on the external hardware and software of risk management: understanding our personal and organizational aspects of risk will help us make better use of our risk management systems.

It’s an unmissable tour of often-overlooked risks that every smart operation will embrace!

Take the test …

So – take the short test here to assess your personal risk appetite, then compare it with what you think your organisation’s risk appetite is.

Is there a big difference? Who is more risk-averse? What actions do you need to take?

Find out more about my next two workshops here:

 References

The paid image above is from the great selection at http://www.123rf.com/

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