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MOST people admire famous and successful risk-takers such as Apple’s Steve Jobs or Virgin’s Richard Branson. But faced with a risky situation, they would probably follow their instincts and run for cover.

After all, the problem with risk is the uncertainty of the outcome! There are one too many stories of people who quit stable jobs for new, exciting ventures, only to be out of work six months later; or of those who bought properties or shares at high prices only to see their value tumble in a market collapse.

Mindful of these realities, some people fear making a wrong decision and focus on avoiding risks altogether. They delay difficult choices and develop protective mechanisms such as over-analysing issues.

Risk versus opportunity

Unfortunately, you cannot run away from problems forever. Every day, you are challenged to make good decisions. Success in both your private and professional life depends largely on your ability to make tough decisions despite all the risks involved.

Risk and opportunity go hand in hand. You must learn to limit the possible negative consequences of risk while optimising the potential benefits of its associated opportunity.

Types of risk-takers

Depending on their attitude towards risk, that is, whether they are risk-takers or are risk-averse, and their competence in managing risk, people tend to fall into the following profiles:

• The gambler: In your organisation, you have probably heard of someone who made it all the way to top management by relying on his guts to make risky decisions.

  This is not proper risk management — this is gambling! While he might be lucky for a while, sooner or later, the tide will turn suddenly without warning, often destroying what he has achieved.

• The risk-averse: At the other extreme is the person who believes in Murphy’s Law — “If anything can go wrong, it will” — and has a hard time making decisions because he analyses the situation too much.

  While mitigating risk to a certain extent, he often ends up missing the opportunities presented to him and spends too much time focusing on building costly protection systems that may not even work in the end.

• The sure loser: He is one who has been hurt by the challenges of life and suffers from the victim syndrome. He adopts a very negative approach and resists any change while constantly trying to avoid risks at all costs.
• The effective risk-taker: This is the person who has learned the skill of managing risk, who knows that somewhere between denial, instinct and over-analysis, there is a logical, systematic and practical approach to integrate risk management in decision-making in a way that does not require endless analysis. It helps him to confront the facts, assess the impacts and weigh the options available.

Be aware of risks

To do so, you need to understand some basic concepts, methodology and tools of risk evaluation and decision-making.

Risk management helps you understand the impact of your decision on all operations. It creates the models and tools to predict outcomes and build counter-measures to prevent unintended and undesirable consequences. The final outcome is minimised risk and higher returns. To achieve these, you should:

Article by Marc Ronez, the managing director of the Asian Risk Management Institute (ARiMI). E-mail: marcronez@arimi.org. Website: www.arimi.org.