Tuesday, January 13, 2015

Acceptable Risk

In any typical group (let's say with a dozen or more members) it's nearly a lead pipe cinch that you'll have a spectrum of attitudes toward taking chances. That is, you will have some members who are risk tolerant and others who are risk averse. The challenge is recognizing this (without name calling) and figuring out a way that both sides can play nice together.

This is hard because the folks at each end of the spectrum tend to view those at the other end as their worst nightmare. If you're risk tolerant, the risk averse keep gumming up the works with hand wringing and doomsday predictions. If you're risk averse, then the risk tolerant are always inviting you into propositions that feel unsafe. It can be exhausting,

If you accept, in concept, that all risks are not appropriate to take, yet neither is it wise to take no risks, how do you navigate this dynamic? How does a group determine acceptable risk?

Here are key questions:

1. Do all parties feel heard?
This is foundational, and can often be trickier than it appears. In essence, it's making sure that each player—especially those on the other end of the risk spectrum—report being satisfied that their input has been accurately heard. Note that this is more than being able to parrot back the words—it's also understanding what the words means to the speaker.

It's common to stumble here when the listener thinks they've heard the speaker, but has neglected to affirm that with the speaker. Even when the listener is correct (about having fully heard the speaker), things don't proceed smoothly when the speaker has no confidence that they've heard.

Worse, if this is a familiar dynamic (say where a risk tolerant listener is hearing the same old song from a risk averse speaker), there's a marked tendency to close one's ears after the first few bars—because it sounds so familiar—prematurely closing off the possibility of taking in nuances that are different this time. Hint: eye rolling does not help here.

2. Does the proposal address the concerns that have been raised; does it recognize the opportunities?
There is a much greater chance of successfully bridging the two ends of the risk spectrum if the proposal does a fair job of specifically addressing reservations surfaced by the risk averse. Obviously that means those reservations need to have been solicited and accurately taken in.

Going the other way, if the risk averse insist on placing a governor on operations proposed by the risk tolerant, does that suck all the air out of the balloon? Are there too many restrictions or so much red tape that there's no flavor left in the broth? If addressing concerns is tantamount to shackling or emasculating the initiative, it can be the same as a death sentence.

People need some room to experiment and test new ideas, just as much as they need to feel that risks are within bounds. In short, there needs to be something for everyone.

3. Does everything have to go well in order to succeed, or is there room for some setbacks without sinking the ship?
If there are several components to the proposal, does it require that each one be successful for the entire proposal to succeed, or is there wiggle room such that a few may fall short and there's enough resilience that the main objective can still be met?

Suppose there are six components to the proposal, and that you can reasonably project a low, average, and high outcome for each one. If the only pathway to overall success requires that you achieve high outcomes for all six components, then success is wildly improbable. One the other, if you can succeed by achieving only average outcomes for all six components, then you might reasonably argue that low outcomes in some areas may be compensated for by high outcomes elsewhere.

4. Do you have the personnel to execute and manage the initiative?
Even if the group buys the general concept, there may be questions about whether your group possesses the skill necessary to execute and manage the project. Or, even if you have the internal capacity, the key people may not have sufficient interest or availability to devote to the project. If so, do you have financial wherewithal to hire this work out?

Caution: If there are a number of key roles being assigned to people inexperienced with what the project requires, have you budgeted for fool's tax—taking into account the likelihood that first-timers will make more mistakes and take longer to complete tasks than veterans?

5. Is there an adequate commitment to transparency? 
Sometimes groups make the mistake of limiting (or not making explicit the expectations for) access to information about the project—especially bad news, like cost overruns—for fear that it may mire the group into grueling conversations about whether to scuttle the project, or that the time it will take the project team to explain how best to interpret the news is better spent on doing the project, rather than defending it. There is considerable danger though in delaying the release of this information. It's rolling the dice. 

If some corresponding good news does not surface before this bad news comes to light, you will then have two problems instead of one: a) examining whether or not to continue the project given the impact of the bad news; and b) dealing with the erosion of trust that will surely follow from the discovery of the cover-up.

In almost all cases, it's a better policy to see that the whole group is regularly informed of developments, especially if the news is bad. In fact, standards for frequency and what detail will be covered in reports should automatically be addressed at the point that the project is approved. This is in everyone's best interest.

6. How much does success depend on successfully navigating virgin territory?
There is inherently more risk in a project that has no parallel in the group's history, or occurs on a  scale that dwarfs what has gone before. It's harder to know that you've done enough research; it's hard to know how sound your estimates are; it's hard to assess whether you possess adequate internal skill to carry it off.

I'm not saying this adds up to never attempting things you haven't done before; rather, I'm saying that the unknown increases risks and that this needs to be taken into account.

7. How do potential gains stack up against potential losses?
If you've done something approximating the above it should be possible to place all the risks in one column and all the potential benefits in another. How does it look?

Unfortunately, I can't promise that this will be a magic moment. That is, the risk tolerant may look at this chart and see a green light, while the risk averse may be seeing red. Even when everyone agrees on what the data is, that doesn't guarantee that the data will be interpreted similarly. Some, for example, simply require a greater contingency fund in order breathe normally.

At the least though, you'll be discussing this as the sum of measurable parts, instead of on the basis of prove-that-you-love-me-and-just-say-yes gut checks. Hopefully, a (well-researched) chart will provide you with opportunities to test claims for favorable outcomes of discrete components (such as fundraising) before you're irrevocably committed to the whole megillah.
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To be sure, navigating risk is tricky, but it can be done. In fact, it has to be done, and done in such a way that everyone feels their input has been incorporated in a balanced response. It helps me to remember that when people disagree with me in a cooperative setting that we get the opportunity to produce hybrid vigor (rather than vigorous rancor). It also helps me remember that we all want success for the group, and that were all on the same team—even if some people wear glasses that have more rose-tinted lenses than others.

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