Calculated Risk

Are you a risk taker? Or do you play it safe?

I have always considered myself to be a ‘play it safe’ kind of person. The thought of bungee jumping gives me a surge of panic and I start to feel woozy, all I can think of are the indemnity forms and all those YouTube videos of ‘the bungee jump gone wrong’, so I put my feet firmly on the ground and breathe in and out and think to myself that’s for crazy people and I like the stability of this ground I’m standing on. If you are reading this and are like me you might be thinking, ‘that’s exactly me!’ but there are many things we could learn from the risk takers out there, not to mention the spectacular views we’re probably missing.

Great leaders and entrepreneurs don’t become great by being predictable and playing it safe. There are positives in being consistent and all risks should have a level of consideration but in saying that sometimes it is easy to overanalyze. Anyone can talk themselves out of something and when taking a risk you can’t let yourself be paralyzed by the details. It might never be the perfect time, with perfect circumstances, but at some point you just have to go for it. Take the risk, take the plunge.

In saying that not all risks are meant to be to be jumped at; there are two types of risks in this world – calculated and un-calculated. So what is a Calculated Risk? By definition Calculated Risk is, “A risk associated with a certain course of action which has been given full consideration prior to making the decision to pursue action. This is usually done when the potential gain is greater than any potential damage that might occur.”

For example the insurance industry is designed around calculated risk. Car insurance companies base their rates on how likely you are to file a claim in the future, and they use a number of varying factors to determine that risk such as Driving History, Demographics, Your Credit-Based Insurance Score, Occupation, Location and lastly the type of Vehicle you drive. Taking all of these factors into account and Calculating these Risks they are able to determine the quote which they provide you with.

When it comes to risks you won’t win every time even when they are calculated and avoiding risks will definitely limit your chances of success. It’s impossible to know the future and the outcome of anything unless you have supernatural powers (if only). Before you take risks, always carefully calculate everything. Outweigh the pros and cons. If the pros are extensive, it makes sense to take such a risk, especially if it means the possibility of profit or growth. If you want to take a risk then make sure that the worst outcome is bearable, minimize issues that may arise whenever possible and have a plan B. If risks aren’t for you, try them in small doses. Try a test run before taking a big leap or a hot-air balloon ride before a bungee jump. This will allow you to see the possible outcome before the impact is too monumental.

Remember that sometimes a risk may turn out to be a setback. The challenge is to move forward while actively seeking and managing your calculated risks. There are no guarantees but it pays to learn from the others who have forged paths before you like Harley-Davidson, Apple and Google to name a few, they took risks that paid off big (see further reading).

I’ll leave you with this quote: “Often the difference between a successful man and a failure is not one’s better abilities or ideas, but the courage that one has to bet on his ideas, to take a calculated risk, and to act.” Maxwell Maltz

Further Reading: 8 Risky Business Investments That Paid Off Big:

http://www.onlinebusinessdegree.org/2012/06/26/8-risky-business-investments-that-paid-off-big/

Sources:

http://www.investorwords.com/19256/calculated_risk.html

http://www.dmv.org/insurance/how-auto-insurance-companies-calculate-risk.php

http://www.forbes.com/sites/martinzwilling/2014/08/27/10-startup-calculated-risks-that-lead-to-success/