Are you going to buy that motorcycle helmet?

27 01 2015

“The most effective leaders are actually better at guarding against danger when they acknowledge it exists.  Cowards, in contrast, cling to the hope that failure will never happen and may be sloppy in the face of danger – not because they don’t acknowledge that it exists, but because they are just too afraid of it to look it in the eye.” ~Simon Sinek

As leaders, we MUST open our eyes to risks that threaten our budget, department, organization, reputation, and a whole host of other assets.  Knowing the risk is there will allow leaders to mitigate the risk, where possible.  Sticking your head in the sand, or crossing your fingers, and hoping nothing will happen is a good way to fail – eventually.  Even if there’s a 5% risk of a bad event happening, if you don’t recognize and mitigate that risk, your career, along with your organization will fail one out of every 20 times that you take that risk.  How many risks will you take in your career?  In gambling, the house always wins.

On the other hand, you don’t spend $1 million to mitigate $500,000 worth of risk.  Business schools teach the following formula as a guide to how much you spend to offset the risk of something bad happening:  Cost of something happening times the probability that it will happen is what you should spend insuring against that risk.  So, if there’s a $100,000 possible fee/punishment/loss associated with a bad thing happening, and that bad thing has, to the best of your ability to calculate, a 5% chance of happening, then you spend about $5,000 to mitigate that risk.  Spending more would be overly conservative, and spending less would be foolish.  This same calculation can be used for all sorts of risk mitigation, from your own finances to whether or not to invest in a helmet for your motorcycle in helmet-optional states, for example.

Speaking of sloppy…

SLOPPY

Rubes cartoons used with permission. www.rubescartoons.com

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