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On a recent trip to London’s Victoria and Albert museum, I came across this inspiring quote from Rei Kawakubo, a Japanese fashion designer:

“Playing it safe is a risky business”

Rei Kawakubo

This struck a chord with me as we’d been wondering whether we were too risk averse in our own business.

An example, where I notice many managers play it safe is delegation. Perhaps a reason why many managers fail to delegate is the fear of losing control over the outcome – will the task be done correctly, to my standards? This is what leadership guru David Rock refers to as a certainty threat. If I do the job myself, I can be sure of the outcome – if I delegate it to someone else… who knows?

This type of thinking is reinforced by phrases like “if you want a job done properly, do it yourself” – unfortunately this is precisely what undermines good leadership practice.

We all know the huge costs of not delegating:

• Not freeing up your time to focus on high value tasks
• Not giving others the opportunity to learn and develop
• Failing to allow the business to achieve its potential
• Creating a culture of disengagement and low morale

Heads you lose, tails you win!

Behavioural economist and Nobel prize-winner, Daniel Kahneman explains that we are not prepared to take such risks because losses loom larger than gains. To demonstrate our inherent loss-aversion, he asks if you would accept the following gamble on the toss of a coin:

Heads you lose £1000, tails you win £1500?

Even though the odds are clearly in your favour, most of us would reject this gamble as too risky. For most people, it would take a win of between £2000 and £3000 to risk losing £1000. This is because we all have specialist threat-detection circuitry built into part of our brain called the amygdala – essential to keep us safe in our bygone cave-dwelling days.

Risk aversion can seriously harm your wealth

Now imagine you are allowed ten tosses with the same odds: heads you lose £1000, tails you win £1500. Nearly all of us would accept this as the chances of making a substantial profit are high and the risk of making an overall loss is minimal.

Daniel Kahneman points out that over the course of our lives we do indeed get many chances to take risks where the odds are somewhat in our favour. If we reject these chances as too risky on an individual basis we will be all the poorer in the long run.

Similarly, imagine you are a divisional manager in a large corporation – your in-built risk aversion means that you are likely to play it safe and avoid risk, even when the odds are mildly in your favour. Now consider the corporation as a whole; if every manager rejects such risks, the organisation will suffer financially. The CEO will have a different view of risk to individual managers.

What’s your perception, tolerance and propensity for risk taking?

Are you being bold enough with your plans? Get in touch to arrange an assessment of your risk type or indeed other leadership strengths