Many of us actively avoid risks. Sure, risks can be dangerous, but to progress in many facets of life, they’re often a necessary evil.
Without taking risks, businesses stagnate, personal progress stagnates and whilst others are progressing, you’re left in a heap of worry over “what if?”.
In business, people abandon you for more innovative competitors that continuously offer something new and exciting. In life, it becomes mundane, repetitive and worrisome.
Learning how to take calculated risks (what we would classify as good risks) can be life-changing. Bad risks are often taken on a whim, with very little thought process behind them.
Understanding the Concept of Calculated Risk
Every project and decision you make in life carries a risk of failure. But if you focus on that and only see failure in a negative light, incredible opportunities often slip through your fingers. This is a consequence of your mindset, how you interpret failure and is often deep-rooted and linked to the pressure accumulated from your family, peers and society. We therefore often have a tendency to exaggerate the negative consequences. We come up with unrealistic worst-case scenarios and assume that the risk will end up going this route.
The first key is to understand that failing isn’t a bad thing. It’s an opportunity for learning, an opportunity to learn from your mistakes and figure out what you might have done wrong the first time. To discredit failure for what it is is to go through life expecting to succeed in every effort.
You see how crazy or maybe arrogant that is. I assure you that most people who are risk-averse aren’t the arrogant type.
Making a strategic plan with the intent of success, is calculated. It means identifying probable failures in advance and developing plans to perhaps avoid them successfully. It means weighing all your options, making an excellent, data-based plan, and taking the leap. It also gives you data to fall back on that you can learn from and adjust.
You know when you did something really well and didn’t know how you did it? It’s frustrating right?
You can’t replicate something you didn’t plan in most cases.
The Tricky Relationship with Fear
Fear can easily prevent you from taking any kind of risk. Because of your fear of failure, you may never step out of the proverbial comfort zone. As we’ve already established, that isn’t a good thing in life or business.
You also need to understand that, sometimes, your gut feeling may be lying to you or quite simply wrong. That nervous apprehension you have, could be wrong.
It may tell you that something is scary, but that doesn’t mean it’s risky. It may also tell you that some opportunity is too good to miss, when, in reality, your chances of success may be slim.
That fear can overestimate the level of risk, while the absence of it can, in contrast, underestimate the risk. That means you shouldn’t always go with your gut, as it may play tricks on you.
Again, the key lies in calculating the risk. Measuring it is the only way to stop focusing on fear (and your lying gut!) and keep your eyes on the outcome you want.
The Fine Line Between Emotion and Logic
Whether it’s your fear or the thrill of a new opportunity, your emotions can stand in the way of your success. Therefore, you need to try and take them out of the equation and make room for logic. This is often, as you can imagine, easier said than done, especially when it comes to your own life. It can be challenging to step back and look at things objectively.
By nature, most of us are pessimists and give risks an unrealistic probability of failure. The risk of it not going the way we planned is often much lower than we think.
Put everything on paper. Write down all the advantages and disadvantages of the opportunity before you. Use logic to calculate whether the risk is worth taking, or if there’s enough evidence showing that you should avoid it altogether. Look realistically at what will happen if it goes right and what could happen if it goes wrong. Remember that it’s not uncommon to underestimate your ability to handle the consequences of risk, even if it does go wrong, in most cases it’s something you can handle.
When in doubt, don’t shy away from asking for help. A fresh set of eyes and a fresh mind could give you a whole new perspective on things.
Research Helps You Take Risks from a Position of Knowledge
Before taking any risks, do your homework. Conduct thorough research to inspect every little detail and dig deep into the numbers.
Take the time to gather all the necessary knowledge to understand all the benefits and uncover potential obstacles. The research will help you spot red flags and evaluate your chances of success.
Hunt for Potential Mistakes
If you can predict mistakes way before you set sail for your risk adventure, you’ll be able to determine if the risk is worth taking.
For instance, think about what would happen if you couldn’t meet the deadline for your desired project. What if you lose a lot of money? What if you lose friends or clients?
Think about worst-case scenarios, and focus more on them than on the positive outcomes. If too many potential mistakes keep popping up, you might want to avoid taking that particular risk or try a different approach.
Go All-In When You Find Sure Footing
Once your calculated risk feels right, and you’re absolutely sure it’ll lead to success, take the leap. Embrace the fear and take action.
By that point, you’ve done your research and due diligence, and you’re not playing a guessing game. You’ve crunched the numbers, and you know the opportunity is ideal.
Again, everything we do carries a risk of failure, but you’ve driven it down to a minimum by measuring all the pros, cons, probable negatives, and potential outcomes. So, jump and reap the rewards.
Risk vs Uncertainty
Many people confuse risks with uncertainty. Uncertainty is when all the factors and variables are unknown to you. Risk refers to making a decision based on known factors and potential outcomes.
Weather can be calculated if you look at forecasts. It becomes uncertain when you assume what's going to happen because it’s a particular season.
Make sure you know the difference.
Be Aware of Survivor Bias
Survivor bias means focusing on people or organisations that have succeeded in a particular endeavour while excluding those who have failed.
Don’t let yourself be polarised and often blindsided by a few successful outcomes, when there may be far more negative ones. Get a clear picture to make sure you set yourself up for success.
Taking risks is important, but taking calculated risks is what will make all of your endeavours bear fruit. It will help you step out of your comfort zone, remain innovative, and grow continually.
Just remember to do your due diligence, focus on logic, and pull the trigger when everything feels and looks right.