Why are we so risk averse? 5 reasons…

RCSA, RAM, Risk Assessment Matrix , Permanent Supervision, 3 lines of defence, risk management plan, control plan… our world has never been equipped with so many and so sophisticated risk management tools and techniques. And yet, risk aversion does not decrease. In some cases, risk aversion even gets worse and worse. More and tougher regulations are often blamed…. Still, what a paradox ! Why not feeling safer when equipped with better safeguards?…

In my view, such a paradox is explained by the fact that the safeguards do not act on the causes for risk aversion. Risk does not come from increased regulations; regulations nowadays only result in more drastic consequences. So why are we so risk averse in spite of having better and stronger risk prevention and detection methods?…

Well, I believe risk aversion primarily comes from the management philosophy. More specifically, here are the 5 reasons that I observe every day –

 

1.Being pushed to commit

The cause for risk aversion that I would put at the top is being put the “gun on the head” to take a new endeavour.

Imagine, as a subject matter expert, being asked to execute a task or a project that you somewhat feel highly challenging. And you are told “this is not an option, you have to do it”… how are you feeling when you hear that sentence?… shivering, sweating, defensive… here you are, in the best mind set ever, to find all the good reasons to pull back rather than move forward… in other words, afraid of wholeheartedly embracing the challenge, somehow afraid of being successful, and set for failure.

Now, imagine being told instead: “what do you need in order to successfully accomplish this highly challenging task?”… how are you feeling now?… probably, first of all, understood for the size of the challenge and given a chance to opine, even if in reality, saying no is not really an option offered to you. Then, cared and treated with sympathy. And then, very likely, being made responsible for a big job because you are the one who can make things work, even though the challenge is big. And in this mind set, are you a believer, who will make the rest of a group believe in success?… a lot more likely indeed that in the first scenario.

In short, if you are pushed to commit, you are afraid of the future, not believing in what you are asked to do; if you commit by yourself – even after being strongly encouraged – you are ready to embrace the challenge, looking forward to overcome the difficulties, and even somehow, thrilled by the winding road ahead of you !

 

2. Hard consequences but little reward

The second cause for risk aversion that I observe is what I would summarize in “what for”.

Old-style managers often take success for granted, and do not let any room for failure. As themselves successful people, they find success is normal, but consider failure must be punished. Sometimes, they event prevent people who failed once from being given another chance. So why taking risk when you can only lose? Why being innovative and creative if the only thing that can happen to you is failing? Why trying to do something hard when the only stamp that can be stuck to your forehead is “loser”?

Young talents will dare once or twice. But the third time, they will certainly switch gears: either they will join the rest of the troops who follow the safe and easy path – but never dare anything innovative anymore, and maybe fall asleep until retirement; or they will not accept being treated so unfairly and will move to the start-up next door who knows how to promote creative thinking and how to motivate the people who are daring enough to propose the new idea or method that will plant the seed of the next (r)evolution. And true that such ideas might not result in anything big, but who knows?…

In brief, risk aversion often comes from the unbalance between the size of the consequences of failing vs. the small “good job” note that you receive when you achieved something big.

 

3. No or very little recognition for small progressing steps

The next reason for risk aversion is the fact that recognition – if any – only comes at the end.

Achieving anything big can only happen after overcoming challenges. And that does not happen in the blink of an eye. A hard win will unavoidably be hilly and take time. And during the down side – when people are precisely afraid of what is going to fail, and are becoming risk averse – the management is too busy to acknowledge the challenges that have to be overcome before achieving success. Managers forget to recognize that, even if the bigger goal is still far ahead, the current situation is much closer to the ultimate objective than what it was months ago. Instead, they just concentrate on the difficulties, with a pessimistic eye, asking you for more and more administrative reporting tasks, instead of helping you with regular PIT-STOPs.

As a result, you feel the weight of carrying the pain on your shoulders, and just swear that, next time, you will rather stay still and keep the conservative approach that will take you home early and peacefully at night. But at the same time, this attitude is not going to bring your company nor yourself to the next level.

So, somewhat, not feeling supported during the hard times, being left on your own when you have to untie the knots, and not being recognized for the smaller wins that are going to lead to the bigger one are certainly going to lead you or anyone else to think twice before accepting another challenge.

 

4. No room for half successes

Another factor that I often observe make people becoming afraid of taking risk, is that they are judged to either pass or fail, without any flavour in between.

But let’s look closer, with a few more nuances: when you attack a challenge, you set your goals in a certain context. And before you achieve them, for reasons that are totally beyond your control and responsibility, the context changes. So your goal cannot be fairly achieved in the same way. And what happens in most cases?… you are judged as failing. Indeed: since you did not pass, you failed ! And your brain is stamped with the fear of failing again for ever… or at least for long.

Objectives are usually set once a year, with at best mid year reviews. But is it fair to expect that what is being expected in January or February is exactly what is going to evaluated in November or December?… Is it fair to expect from someone to dare running 1 extra mile if real success is only granted after 10 miles? Is it fair to ask someone to deploy huge personal efforts just to be given a good comment in an appraisal, but not being granted a real good mark, even for a portion of the success?

In short, if you want to expect people over-achieving, they must take risks, and must be recognized for every single incremental success that will eventually bring a group to big achievements. Not recognizing every little success as deserved will undoubtedly discourage people from even participating to the race.

 

5. Pushed to do your job in a certain way

Lastly, one of the key factors that I observe and that makes people risk averse is to be cornered to do things in a certain way.

Being asked to take responsibility of a challenge can be hard, but it can also be very rewarding once you pass: somehow, you are asked because you are one of the few who can make it happen. But if you are told to take a route that is not the one you would have chosen, you immediately become unconfident, and two scenarios can happen. Either you are well supported by the one forcing you in that route, and you hesitantly rely on him during difficult times; the end result can turn out to be good, if the person in question is really supportive and accepts to guide you when you are lost. Or the person forcing you to take that route erases when you need guidance, and you simply inherit a map that you cannot read; in that situation, you either have to be extremely creative and optimistic, or you are likely to drive in a wall. In both cases – whether you are supported in the route you had to take or not, it is pretty likely that you are going to feel panicked and out of control at some point of time. And you will certainly wish not to get caught again in a similar journey in the future…

In other words, people being micro-managed are likely to become risk averse as they are not in control of the steering wheel.

 

To conclude, I will end by saying that the level of fear to take risk is often a common schema in a given company, which proves that risk aversion is often created or avoided by the management culture. Either the management decides to encourage people to be creative, innovative, to dare going the extra mile – and they accept failures without necessarily holding people accountable for ever; or the management decides that their people have to stick to being disciplined, and to follow the route decided above them – and they have to accept that people are not going to stay late and try the next innovative project, as the reward is probably going to be small compared to what is at stake for them. Which way is yours? You choose. I am not suggesting one is better than the other; the appropriate option probably depends on the nature of the business you are in. But it is extremely rare to see a company with a real mix of both approaches, whatever risk management and control techniques are being used.

Now the question becomes: how can you, as a manager or thought leader, address these five root causes to cautiously encourage the people within your perimeter of influence to take weighted and transparent risks, while complying to the risk management philosophy that is surrounding them… here are some thoughts.