How to Stack the Odds in Your Favour
The smart way to take risk
On 14th October 2012 Felix Baumgartner leapt into the record books. He jumped from a helium balloon in the stratosphere, 39,969.4 metres above the ground.
He hurtled through space at speeds of up to 1,358kph (844mph), faster than the speed of sound, before releasing his parachute and landing safely back on earth.
In doing so he broke multiple records, including being the first person, human-powered, to break the speed of sound, from the highest-ever freefall. This incredible achievement took seven years to pull off and not surprisingly many considered it a crazy and impossible feat.
It took extraordinary courage to make the jump. This came from endless testing and practising, from being a highly skilled skydiver and base jumper and having specialists in every field in his corner. Essentially it was identifying and managing the risks that made this a success and prevented Felix from becoming a human pancake.
The challenges of taking risk
While few of us aspire to skydive from space, we are biologically programmed to take risk — without it, humans would never have explored new lands, traversed the seas, or learnt new skills.
As kids, we are constantly taking risks, accepting uncertainty and pushing our boundaries. As adults, we tend to be more cautious.
Often it feels like there’s more at stake. That might be what others might think, the fear of failure, the fear of the unknown. Self-doubts can hold us back. Getting out of our comfort zone, by definition, is uncomfortable, and the risks can feel too high.
Letting caution get the better of us puts us in an invisible prison. We have a choice — settle for the seemingly safe and familiar, or we can step away from the accustomed and open ourselves to challenges, the unknown and see where that takes us.
My expeditions had life-threatening risks wrapped up in them. Unpacking the risks and having a strong risk management approach were critical to success and staying safe. It created boundaries for what I was getting into and helped me get perspective on my fears and self-doubt.
Before delving into the approach, let’s get clear on what we’re talking about.
What do we mean by taking risk?
First, let’s define ‘risk’. I spent decades in risk management primarily in international banking, and have seen many definitions. I like this one from the International Organisation for Standardisation (ISO 31000:2018) which defines ‘risk’ as:
The effect of uncertainty on objectives.
It means there is uncertainty between where we are, where we’re planning to go and how we plan to get there. While we tend to think of risk as a negative, the result can be positive or negative.
When we expand risk to risk-taking it can be defined as:
An action or behaviour taken with uncertainty about its outcome and/or the possible benefits or costs.
It’s about taking a journey into the unknown where we don’t have total control over the outcomes, which can be off-putting.
Why should we take risk?
It’s only by taking risks that we grow and discover what our passions are and what we’re capable of. Going from the life we have, to the life we want is to involve taking chances and stepping into the unknown.
It’s how we grow and create a life of meaning and purpose, bringing us fulfilment. It brings a life that we can look back on and smile at, without regrets.
“Progress always involves risks. You can’t steal second base and keep your foot on first.” Frederick Wilcox
The more we take calculated risks, the more we build up our tolerance for the unknown and uncertainty. If we do that, then we will take on bigger and more audacious goals.
Exploring what we are capable of is like a series of experiments. And the more experiments we make, the better we get and our tolerance for risk and uncertainty increases.
How can we improve the odds?
We need to manage the risks.
The purpose of managing risk is to:
increase the likelihood of achieving our objectives
by being in a position to manage threats and adverse situations and
being ready to take advantage of opportunities that may arise.
One of the benefits is summed up nicely by Ernst & Young:
Effective risk management gives you the confidence to take risks.
And this is it — by knowing and preparing for what might go wrong and being ready to deal with adverse situations, we gain confidence.
This process is how we turn the risks we take into calculated risks, rather than reckless ones.
Take calculated risks. That is quite different from being rash.
General George Patton
How to manage risk
At its simplest, it’s working out what can go wrong, the impact that would have and then how to manage it, if needed.
The process is simple as: I AM = Identify, Assess, Manage.
IDENTIFY First up you need to establish what the risks are. What could go wrong? What needs to go right, but might impact that? What’s worst case? List everything out. What are the hazards you might face and what would happen if they eventuate?
You might start with categories of risk. In business these could include: financial, legal, regulatory, information technology, operational, strategic, environmental, and market risk.
In my Nile expedition it included:
Animal — e.g. hippos, crocodiles
Environment — e.g. heat, storms, rapids
People — e.g. theft, visa refusal, physical attack
Injury/Illness — e.g. Malaria, broken bone
Equipment — e.g. loss/damage of key equipment
Categories can be used to help dig into the risks. It might take multiple attempts to identify everything.
ASSESS Now we measure the risk and work out which we care about and which need managing. This is done by estimating the impact if the risk was to occur, and the likelihood of it happening. Effectively it’s a massive reality check.
In risk management assessment matrices are used to measure the risks. Begin by assessing the likelihood.
This isn’t fixed in stone. Find ratings that mean something to you. Your description might be based on the number of times the risk could eventuate in a year. You might vary the percentages.
Then the assess the impact:
Again, the descriptions need to be tailored to you and your initiative.
If you can’t assess the likelihood or impact, then you know you have an information gap.
You go through each risk and rate them, and get an overall rating based on the matrix below. Again, amend this to what works for you.
Each rating has an recommended action:
MANAGE For those risks that need to brought down to acceptable levels you need to take action. You’ve got a few options:
REDUCE — take action to reduce the risk e.g. get a vaccination
SHARE — transfer risks to an external party e.g. insurance
AVOID — avoid risks entirely
Those risks you retain, i.e. you accept the risk as is, you might periodically re-assess them.
For some risks you might include action plans to deal with risks should they eventuate. You don’t want to be working out what to do when the proverbial hits the fan.
Here’s an extract from my risk register for my Nile expedition.
When I did my assessment I realised I didn’t know what to do if arrested. And Google wasn’t much help. I needed to find a specialist and engaged a company that I checked in with daily, they gave me intel reports and were there to assist if this happened. Which it did. We were arrested and detained in Burundi and they got us out.
This article here about Michael Phelps covers planning for worst case in more detail. You don’t want to be coming up with solutions on the spot, in a potentially emotional or pressurised situation. It’s far better to have a tried and tested approach.
There can be no great accomplishment without risk.
Neil Armstrong
Once you’ve done all of this, then it comes down to your appetite — are you hungry enough for this level of risk. If yes, then go do it!
And that is it. This is the process to convert a risk to a calculated risk and make it less like a game of Russian roulette.
Is there something you have in the pipeline you could apply this to? Or perhaps, think back to something you did in the past — would this approach have helped?
You don’t need to be doing something completely crazy to benefit from risk management. For me, it’s invaluable — it helps me identify any knowledge gaps and creates boundaries for what I’m getting myself into. It gives me perspective on the risks and helps me unpack any fears I might have and ultimately gives me the confidence to go after my big, bold dreams.
Know the risks, manage the risks, take the risk.