Summary
It is common belief that business leaders have a disposition for taking risks. The media and entertainment industry often portray entrepreneurs or business leaders' risk-taking as the key ingredient for success. (Looking at you Succession)
Crisis managers, on the other hand, are viewed as risk averse, while suggesting the world may end at any moment. (I mean, technically it could, Don't Look Up style)
Crisis managers are not typically viewed as risk takers or seekers, and especially during crises. And business leaders are not often viewed as risk intolerant.
I challenge these perceptions, as I believe business leaders have a lower risk tolerance than they think and crisis managers can take more risks, even in a crisis.
Let’s break it down:
For the purpose of this post: Decision making experience is defined by the frequency and number of key decisions made or influenced by a business leader or crisis manager. It's not defined by title, rank, or years in a role or profession. There’s plenty of people with big titles or decades in a role with little or no actual decision making experience; and even fewer people have actual experience in crisis decision making.
Limited experience: Frequent or infrequent risk taking with low confidence
The business leader is likely driven by passion and opportunity. Startups when they achieve their first round of funding, often lack structure or formal approach to decision making, resulting in decisions driven by “gut feelings” or “intuition.” This may or may not result in good outcomes, and rarely is associated with high confidence.
Conversely, crisis managers with limited experience are often prisoners to the plan and stick to what has been mapped out even if it does not apply to the current situation. This may be because there is defensibility with following a plan, and gut decisions are difficult to explain under oath. The drawback of limited experience is that innovation is often sacrificed. Opportunities, while sometimes risky, are not seized quite as aggressively as those in business.
Advanced experience: Measured risk taking with higher confidence
Overtime, business leaders and crisis manager’s risk tolerance will begin to intersect. The decision makers may learn from the wins, but more likely than not, they learn from the losses. Here we begin to see a reduction in the riskier behavior by business leaders and the increase of risk taking by a crisis leader. Both are feeling more confident in their risk tolerance and how it influences their decisions.
Finally, as their experience grows, they likely have a more mature decision making approach. They are willing to take more measured risks because they now have a higher confidence in the potential outcome. And most importantly a decision to not take the risk is actually riskier than the risk itself (say that 10x fast).
What propels the shift in risk tolerance for business leaders and crisis managers?
1. They learn to prioritize the riskiest risks.
In March 2020, I led New York City’s continuity of operations planning and response. As the covid-19 risk profile unfolded, it became clear that operating in-person was a significant risk to everyone’s health and to the operational response.
In mid-March, I decided to transition my 20+ member team to fully remote. We were the first team coordinating a city-wide operation to work from home during a large-scale crisis. This had never been done before in NYC. At the time it was a radically different approach for both government and crisis management.
It was a significant risk. I couldn’t afford delays, miscommunication, or missteps in the operation. We needed to quickly move and protect the city’s critical services and more than 300,000 employees.
Now, the decision feels obvious, but remember, it was March 2020 in New York City and we were operating blind on the proverbial crisis management front lines while the virus ravaged the city. If we became sick, it would not only disrupt the operation, but would have cascading effects across an already lean and overwhelmed agency.
2. They understand risk aversion consumes energy and crushes opportunity.
At the start of my career, I worked for the National Fire Protection Association lobbying for fire and life safety codes, including the federal adoption of residential fire sprinklers. One day, I found myself at the Maryland Fire and Rescue Institute suiting up in full firefighter turnout gear so that I could walk into a burn building. (If you’ve never seen a demo of how fire sprinklers can prevent the spread of fire, check out this VR / 360* video demo. Spoiler: You’ll look at your sprinkler-less home very differently. Learn more about residential sprinklers here).
After that experience, I couldn’t imagine living in an apartment without sprinklers (queue the risk aversion). Fast forward 5 years, I moved to New York City, where it's difficult to find any apartment, nevermind one that would be sprinklered and affordable.
This simple story illustrates a big point.
Risk aversion creates barriers and limits decisions. Work with the risks, rather than against them.
Eventually, I found a 1930's fire resistant building with a really nice fire escape.
3. They make decisions in the reality they have, not the reality they want.
Following Superstorm Sandy the City of New York was sued for the lack of accessibility for persons with disabilities and other access and functional needs. During this multi-year effort, I supported the many agencies that came together to remediate and improve school facilities and their infrastructure. With the foresight and vision of some of the leaders, the city was able to incorporate additional and much needed changes to the effort, including emergency power hook ups to all schools.
The lawsuit was not the reality we wanted but it was what we had. And the team propelled the city to a new level of accessibility and preparedness.
For most people risk tolerance is fluid fluctuating with external conditions. If you’re a business leader or crisis manager, how has your risk tolerance shifted with the pandemic and economic uncertainties?
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