This video will answer the classic risk question: Where is the line between a calculated risk and a reckless gamble?
- So, what exactly do we mean when we're talking about risk? Well risk still remains an undefined leadership tool, yet it's the most important vital apparatus of our time. If you think about it, without risk, there really can be no reward. Yet even today, the business world as we know it is still steeped in tradition, hierarchical practices that not only preclude it from moving forward, but kills it's relevance, and maybe even risk taking as a practice altogether.
One of the reasons why risk has yet to be convincingly defined as a vital tool in the leadership toolbox is that because it has been held hostage by finance departments and entirely undervalued as it applies to leadership and management. Business schools and management authorities have researched, written, and spoken exhaustively about how to create or improve on products and services to stay competitive. Risk taking has never been highlighted as a key part of what makes great business people and leaders tick, even by people or companies that excel at it naturally.
And when something such as risk taking is not exercised, just like a muscle in the body, it atrophies. The classic risk question is this; where is the line between a calculated risk and a reckless gamble? Can you win big or lose big either way? The answer is yes, but. Calculated risk requires tools, skills, and knowledge that are, in one or more ways, left out of the gambler's equation.
So what can we learn from gamblers about enabling and mitigating risk? Here are a few points to consider. For a gambler, you must understand not only what you can gain, but what you can lose. Smart risk takers learn how to quickly calculate their gain loss ratio, and walk away when the math isn't in their favor. If you can't lose everything, then don't risk everything. You often hear a player say something like, I had a three to one payoff, meaning that for every chip they add to the pot and potentially lose, they gain three back if they win.
The higher the ratio, the more reasonable the risk. The second thing to remember is to soak up as much contradictory knowledge as possible about anything related to the risk you are taking. You should be seeking out opinions that clash with your own thoughts and feelings, no matter how uncomfortable it might be. This helps you see the full spectrum of possibilities; the good, and the bad. Every action causes a reaction, and reckless gamblers rarely look past the first layer of consequences to understand the ripple effect their gamble may cause.
The best poker players, by contrast, are expert observers, watching facial movements and players eyes, ears, mouths, for information about how other players bet. Next, learn how to chunk. No two situations are alike. Flexibility and a adaptability are essential. In his book The Sports Gene, David Epstein describes the concept of chunking, which is the subconscious practice of segmenting information based on patterns you have witnessed before.
Epstein says that chess masters and elite athletes chunk information, recalling patterns that have worked well in the past. For example, a grand master chess player only needs to remember a few chunks of several chess pieces rather than the whole board, because the relationship between the pieces have great meaning for that person. Epstein points out that we have a much easier time remembering a 20 word sentence rather than 20 random words which have no meaningful relationship to one another.
Individuals who are highly practiced at any activity naturally link multiple pieces of information into one thought process. Last, but not least, embrace failure. Separate your emotions about winning from the win itself. And when you lose, celebrate being a little smarter than you were five minutes ago. True gamblers, unlike rational risk takers, tend to need the high of winning and confuse it with accomplishment.
The term on tilt refers to players who have shed their discipline and gone reckless. Players on tilt rarely win in the long term. When making a calculated risk, use these concepts to help your decision making. By calculating your risk, seeking out knowledge, segmenting information, and embracing failure, you separate yourself from taking a hazardous gamble to making a well thought out judgement.
Once you as a leader have figured out how and when to take risks, you can then build a culture that not only focuses on producing great work, but also on creating and executing a steady flow of ideas to improve every aspect of the organization. Watch this course to enhance the relevance and marketability of your business and your career.
- What is risk?
- What role does risk play in leadership?
- Assessing your risk-taking style
- Understanding your organization's risk tolerance
- Defining risk-takers
- Cultivating smart risk-taking behavior
- Modeling risk-taking leadership