This post first appeared on Quora in response to the question ‘How do you convince people to take a risk in a company?’ Link.

 

How do you convince people to take a risk in a company?

Firstly, I don’t think we should ever push people to take risks that 1) they are uncomfortable with and 2) that don’t serve the company’s objectives.

However, I also know that sometimes people might overestimate and subsequently avoid a risk that might actually benefit them and the company. That is something we can help with.

I think that you start by breaking things down into four parts:

• Understand the risk
• Understand the person’s perception of the risk
• Understand how the risk relates to the company’s objectives
• Understand the company’s risk appetite and tolerance

If we look at these in more detail, the first stage will be to assess the risk. Understand its components so the magnitude of the threat is clear, understand the company’s vulnerability (or exposure) to the threat and what impact it might have. If you use an objective, fact-based, quantitative approach, this makes it easier to develop a description of the risk that people can agree on. This description of the risk gives you a generally agreed-upon starting point for the subsequent parts of the discussion.

Secondly, you need to understand the concerns of the people involved. We all carry a lot of psychological baggage with us when it comes to risk. Our perception of risk will be informed by our experiences, implicit biases and our perspective.

For example, someone who has seen a company go under by being too reckless might be more risk averse compared to someone who felt that their previous company failed because it grew too slowly.

Importantly, a lot of the factors that affect our risk perception are subconscious so people might not know why they feel a particular way about the risk.

Third, how does the risk relate to the company’s objectives? If the risk assessment was carried out thoroughly, you should be able to assess the potential effect of the risk on the company’s objectives. Sometimes a risk can seem significant because the threat is triggering a sub-conscious response but on further analysis, the overall risk might have little bearing on the company’s objectives.

Finally, understand how much risk the company is will to seek out and accept on a day-to-day basis (its risk appetite) and how much risk can it accept on a short-term basis (its risk tolerance).

Armed with all this information, you can then have an informed conversation with the people involved. Discuss the risk, acknowledge people’s perceptions but then relate it to the company’s objectives and the risk appetite / risk tolerance of the group.

This lays the foundation for a much more data-led, objective discussion about the risk and a merit-based decision on whether or not to take it instead of a subjective reaction.

As a quick example, I once had a client who manufactured private jets. They sold a large number of aircraft in Latin America and frequently travelled to Colombia back in the late 1990s and early 2000s when there were some significant security concerns. When I started to work with them, they were keen to open up Africa as a market but were very hesitant to go to Nigeria, citing the risk of kidnap and unrest.

Using the approach described above, we were able to establish that the risk in Nigeria was very similar to Colombia; that this level of risk did not exceed their risk appetite; and that Nigeria was key to the company’s strategic sales objectives. The issue was that because they were less familiar with the situation in Nigeria, they perceived the risk to be much higher than a similar situation in Colombia.

Eventually, we built what we called the ‘Bogota-model’: a set of precautions they would apply in any higher-risk situations to mitigate the risks. These were the same precautions they used in Colombia, routines that they were familiar with and trusted. As they could now objectively compare Lagos with Bogota, and had confidence in the precautions in place, they were now willing to operate in a location that had been previously deemed too high risk.

Importantly, there was no need to persuade or sell this outcome. Once we had established an objective understanding of the situation, the client needed no convincing that this was a risk worth taking to further their objectives.

As this example illustrates, I don’t think that you need to persuade someone to take a risk. Rather, if you put a risk into context, show how it can further the company’s objectives and it still falls within the company’s risk appetite and tolerance levels, then the argument makes itself.

If you find that you are trying to push risk-taking that doesn’t meet one of these criteria, then you might be underplaying the risk yourself or be pushing people to take an unnecessary risk.

So, if you can have an open, objective conversation that acknowledges the risk, risk perception, risk tolerance and appetite, while relating everything to the company’s objectives, you will be able to persuade people to take prudent risks that benefit the company.