A Practical Equation for Risk Analysis: A Leader’s Perspective

Risk taking is one trait that a leader needs to have in order to be really successful. Let’s face it, we don’t want risks. We fear that taking risks would amount to big losses that we cannot handle. That applies to both business and personal aspects. Business schools will teach you how to quantitatively and qualitatively calculate risks in order to make the right decisions. While I may adhere to those scientific ways on risk assessment, leaders should use their instinct and intuition to make decisions and face risks. As a financial analyst friend of mine used to say, “the higher the risk, the bigger the return.” Let me share a practical equation for risk analysis that will be very useful for anybody when making decisions. Take the quotient of the number of times that an event actually happened with the number of times that you have actually feared that the event will happen. I’ll give you a very practical example. You fear the risk of losing your job if you bring up an issue with your boss so you keep quiet. How do we calculate the risk quotient? How many times have you gotten fired because you talked to your boss about an issue? Probably, zero since you still have the job. Let’s call this n. And how may times have you feared that it would actually happen? Probably, a lot of times. And let’s call this one m. Divide these two numbers and you’ll realize that you have a very low risk quotient: n/m. You see, most of the risks that we perceive them to be are really just what they are – perception. We are consumed by those fears that we sometimes fail to realize that risk taking is necessary for growth. I’ve got my own shares of risk-taking adventures as I love taking risks. But sometimes, one can’t help but to linger in their comfort zones and this prevents one from taking risks. But as T.S. Elliot once said, “Only those who risk going too far can possibly find out how far they can go.” And that’s the essence of risk taking for leaders

Please note: I reserve the right to delete comments that are offensive or off-topic.

Leave a Reply

Your email address will not be published.