How to be an effective risk-taker - Association Of Corporate ...

Top tips for effective risk-taking · Recognise that risk-taking is a behaviour, not a process, job or department. · Make risk planning central to your business ... Skiptomaincontent Howtobeaneffectiverisk-taker Toptipsforeffectiverisk-taking Recognisethatrisk-takingisabehaviour,notaprocess,jobordepartment.Youcanlearntogetbetteratit. Makeriskplanningcentraltoyourbusinessmodelandcorporateculture.Siloedcompliance,financeandstrategydepartmentscanleadtoinconsistencyinbehaviourandriskappetites. Identifyyourbestrisk-takersandempowerthemtomakedecisions,andlikewise,appointmentorstohelpineffectiverisk-takerstoimprove. Definestructures,roles,rewardandrecruitmentpoliciesthatsupportyourcorporateappetiteforrisk–anddonotoverwhelminglyemployambitioushigh-flyers. EnsureriskmanagementcascadesdownfromtheCEO.Topleadersneedtocommunicateconsistentlyandensurealldepartmentsunderstandtheirresponsibilitiesaroundrisk. Takingchancesinbusinessisnotaboutmakingrandompunts–itrequiresunderstanding,practiceanddiscipline.GraemeYellexplainstherulesofrisk Oneonlyhastoopenthenewspapertoseethemostterrifying–andtopical–wordinbusinesscontinuallyplayedout:risk. Thedramaticupsanddownsofthepastfouryearshavetransformedrisk,takingitfrombeingafairlyobscurefunctionandcastingitfirmlyintotheglareofcorporate,regulatoryandpublicattention.Despitethis,it’snotatallclearwhatpeoplemeanby‘risk’.Inthepublicunderstanding,riskissynonymouswithinvestmentbankersplacingbillion-pounddeals.Inthecorporatemind,riskisslicedanddicedintooperational,credit,reputational,marketandsoon.Forpoliticians,it’sarisk-aversepublicandbusinesscommunitythatiscontributingtostalledeconomicrecovery. ‘Decision-makingwithconsequences’maybeagooddefinition.Ifweacceptthat,wecanseethatitappliestoallfieldsofendeavour–itissomethingwealldoeveryday.Soit’snosurprisethatI’moftenasked:“Howdowegetbetteratrisk-taking?”Theansweriscomplicatedbythefactthatmanyorganisationsinsertstructureandprocessintowhatisessentiallyahumanbehaviour.Aswithallbehaviouralcharacteristics,youcouldtakethe‘best’risk-takerandputtheminanenvironmentthathamperstheireffectiveness. Toputthisallintocontext,HayGroupconductsregularresearchintoemployees’appetiteforrisk-takingcomparedwiththeorganisational‘reality’.Itslatestreport,TheStubbornGap,drawsonitsOrganizationalClimateSurveyofmorethan100,000employeesfrom1,300companiesoverafive-yearperiod.Althoughcompanieshavetakenstepstoavoidarepeatofthe2008downturn,thegapbetweenthelevelofriskallowedbycompanyproceduresandthewayinwhichfrustratedemployeeswouldliketobehavereachedorexceeded20%innearlyhalfofcompanies.Abovethislevel,firmsareathighriskofemployeescircumventingorganisationalcontrolsto‘takemattersintotheirownhands’.  Aswithallbehaviouralcharacteristics,youcouldtakethe‘best’risk-takerandputtheminanenvironmentthathamperstheireffectiveness  Humanappetitemaybehardtocontrol.AsPrincessLeiasaystoGrandMoffWilhuffTarkininStarWars:“Themoreyoutightenyourgrip,Tarkin,themorestarsystemsslipthroughyourfingers.”Shemighthavesaid:“Themoreyoutryandcontrolrisk,themorepeoplewillfindwaystoevadeyourcontrols.”Butthegoodnewsisthatalotofthebehavioursandskillsakintoeffectiverisk-takingcanbedeveloped. Whatmakesaneffectiverisk-taker? Effectiverisk-takerstendtodemonstratethefollowingrecognisablecharacteristics: Achievement-driven–buttheyaremoderatedbyanappreciationoforganisationalgoals,andwillingtoseeksupportwhennecessary. Broadscanning–theyunderstandthebiggerpictureanddon’tjustseedecisionsinisolation. Conceptualthinking–theyareabletoapplyexperienceandrecognisepatterns–theydon’tneed100%oftheinformation,butaren’ttakingrandomguesseseither. Strong‘locusofcontrol’–theytakepersonalaccountabilityfortheiractionsandtheiroutcomes. Toanextent,thecharacteristicsofineffectiverisk-takersaretheconverseoftheabove,buttherearetwomaintypes: Themouse–ishighlyindecisiveoralwaysneeds100%oftheinformation.Theresultisthattheynevertakeanyrisksatall. The‘bigdog’–isobsessivelydrivenbyaburningdesiretobreakeveryrecordorattainherostatus.Thisachievesastonishingresultswhentheformulaworks,butifthingsstarttogowrong,the‘bigdog’willbetthemortgage,thegrandmother,thewholefirm. Arerisk-takersbornormade? Alloftheeffectivebehavioursdiscussedabovecanbedeveloped–althoughthey’remostlydeeplyingrained,soittakesseriousdedicationandpractice.Tobecomebetterrisk-takers,employeeswillfirstlyneed: Anunderstandingoftheorganisation’sriskappetite; Amentortohelpthemunderstandthecharacteristicitself(throughformaldevelopmentandfeedback);and Practice(safelyatfirst). Risk-takingisn’tnecessarilyasoloactivity–teamscangetbetterbytakingthetimetounderstandtheirexistingdecision-makingskillsandconsideringhowtocombinestrengthsandmitigateweaknessesacrossthegroup.Thisgoeshandinhandwithenhancedcooperationandteamwork. Thefinalfactorisaccountability.Goodrisk-takerstakepersonalaccountabilityforoutcomes–feelingtheglowwhenitgoeswellandthepainoffailuresiscritical–andtheknackisworkingwiththeseemotions,learningandimprovingfromboth. Theorganisationaleffect Linemanagersmuststrivetoensurethattheirteamdevelopsariskappetiteinlinewiththatoftheorganisation,butthisischallenging(seethePrincessLeiapointearlier).Iftheorganisationrestrictsoroverstretchesemployees,theywillbecomefrustratedorstressed. Linemanagersarealsokeytoassessingwheresomeonefeelsreluctanttotakerisksandexplorethepersonal,culturalandorganisationalissuesthatinhibitthem.Youcanexplorethelevelofreluctancethroughthefollowingformula:R=1/(AxIxS);whereR=reluctance,A=assessmentofownability(inrelationtoatask),I=incentivetodoit(notjustmoney)andS=self-confidence. Formanyyears,companieshavebeenhardwiringtheirorganisationstotakeonmoreriskbyrecruitinganddevelopingpeoplewithahighachievementmotivation.Thedesiretoachieveclearlyhasbeneficialresultsforbusinesses.Butcompaniesneedarangeofeffectivesystemstomanagethatbehaviourandpreventitgettingoutofcontrol. Successfulriskmanagementalsoreliesuponmanagersbeingabletoextendtheirinfluencebeyondtheconfinesoftheriskfunctionitself.Persuadingotherbusinessareastotakesharedownership,responsibilityandaconsistentapproachtoriskmanagementisahallmarkofsuccess. Examplesofeffectiverisk-takers There’samuch-quotedlinethathasbeenattributedtomanygolfers:“ThemoreIpractise,theluckierIget.”Risk-takingisnotabouttakingaspinonaroulettewheelorarandompuntonahorse,butamatterofunderstanding,practiceanddiscipline. WhilemanyseeRichardBransonasabrazenentrepreneurwhothrivesonrisk,perhapsheshouldinsteadbeviewedasasuccessfulriskmitigator.Alwaysstrivingtoachieve,spotagapinthemarketand‘shakethingsup’,Bransonrecognisesthatriskisabalancingact:“Ifyouarearisk-taker,thentheartistoprotectthedownside.” Despitenumerousknock-backs,GeorgeLucassawthepotentialofStarWarsandthevalueofmerchandisingandsequelrights.InOctober2012,hesoldhisproductioncompanyLucasfilm,togetherwiththeStarWarsfranchise,toentertainmentgiantDisney,forawhopping$4bn. …andsomelesseffectiveones TheDarwinAwardsaretestamenttotheworld’slesssuccessfulrisk-takers.Onecanonlyhopethatmanyothershavelearnedfromtheirmistakesandarenowbuildingeffectiverisk-takingbehaviours. Meanwhile,corporatecasualtyLehmanBrothersandthegovernmentpayoutsmadetoshoreuphighstreetbanksonlyunderlinetheextentofthefalloutfrommisjudgingrisk.InLehman’scase,thefirm’saggressivegrowthstrategyanditsapproachtoriskledtoitsruin.Appetiteforriskwasreportedlyincreasedandbreached,internalwarningsystemswererepeatedlyignoredand,despitethis,morebusinesswastakenon. Ultimately,whilemanyhavetriedandfailed,neitheryounoryourbusinesswillreachyourtruepotentialwithoutahealthyappetiteforriskandthedesiretopursuenewopportunitiesandinnovate.InthewordsofGoethe:“Thedangersoflifeareinfinite,andamongthemissafety.” Abouttheauthor GraemeYellisdirectoroffinancialservicesatHayGroup Dec12Jan13TTrisktaking58-59.pdf Scrolltotop