Balancing Risk and Reward

I am afraid of heights. Well, maybe not. Actually, more accurately, I am afraid of falling. I once in the 1990s climbed to the roof of a castle somewhere on the Scottish-England border. Perhaps it was Carlisle Castle. It was not a problem going up the windy and crooked stairwells to the higher levels. However, to get to the roof, there was a 20 ft. rickety old wooden ladder (perhaps as old as the Castle itself, built near Hadrian’s Wall). That was a problem for me going up. When I got to the top, I leaned over a slot in the incredibly thick stone wall and gazed upon the beautiful countryside. Beautiful!

And then it was time to leave. I had to go DOWN that ladder…not good at all. In this way, I learned that I am not afraid of heights, but falling. That is why I prefer the window seat on an airplane, yet not climbing on the roof of my house to fix a shingle. Nevertheless, I do fix the shingle myself to save some money, usually with a chum to hold the ladder for me and otherwise provide support by distracting me during the climb.

A risk professional knows this well. Nothing is quite what it seems at first; you have to dig deeper to understand the root cause. Once you do, you understand the real risk and then you can mitigate it.

How do you get to the root cause? You review the process, as I did above. Then you get the support you need to address the risky bits.

Once you see the process gaps and understand the concerns along the way, risks begin to pop out at you. These risks must be acknowledged by the business and balanced against the rewards or opportunities that manifest with taking the risk. Planning for risk mitigation, like distracting yourself from thinking about climbing a tall wobbly ladder, is the next step. If you can successfully mitigate the risks (e.g., risks of non-compliance, legal risks, finical loss risk of failure or overspending, credit risk, etc.) you can “climb that ladder” and meet the business objective to obtain the reward.