Making risky decisions: a simplified approach

By definition, there is always uncertainty in making risky decisions; after all, the old adage “no risk, no reward” holds true.  No doubt, leadership instinct and past experience play an important role in determining whether the possible reward is worth the perceived risk, but I am nevertheless often asked by leaders whether there is a more systematic approach to making risky decisions.  Decision-making theory abounds with a plethora of techniques and methods, but there is one relatively simple approach that I have found to repeatedly give positive results.  Ask yourself: does making the decision result in more options or fewer?  If the answer is more choices, then move forward.  If the answer is fewer options, then don’t take that action.

Here is one example

Let’s consider an example to illustrate this approach.  You are trying to decide whether to invest in a new piece of equipment for your manufacturing operation.  There are several risks involved with this purchase including the significant cost, an extended period of training for your operators during which there may be difficulties or even service breakdowns, and expenses associated with retooling several component modules.  Ask yourself: does purchasing this equipment increase my business options or reduce them?  Will it allow you to produce a wider variety of products for a broader range of customers?  Or will it tie you in to working with a single support vendor?  Will this equipment permit easier cross-training of staff which will alleviate some of your employee scheduling challenges?  Or are you more likely to face technical issues when it’s time to switch the equipment to another production line?  The answers to questions such as these will tell you which alternative offers more future choices … and that should be the direction you should lean towards.

And here is a second example

Here’s one more illustrative example from a more personal perspective.  Let’s say you’ve been offered a job by a competitor in your industry.  They’re offering more money, but you still think it’s a risky decision because you’ll be walking away from those who know your established track record to a situation in which you’ll have to prove yourself once again.  Ask yourself: does taking this new job increase my future career options or reduce them?  Will the new job create greater opportunities in promotions, skill and knowledge growth, industry reputation and networking possibilities?  If the new job will allow you to access greater options in the future than will staying in your current role, then follow the path that results in more alternatives further down the road.

This is a approach to making risky decisions has served me well many, many times in my past.  But I’d love to hear your experiences and comments, both in support or in disagreement.  Please share your thoughts below.

P.S. I’ve blogged about dealing with risk from a gender perspective before in Do men and women have the same approach to taking risks?