What is Your Appetite for Risk?

Everyone of us has a different appetite for risk. Different people and organisations approach risk analysis in many different ways, but risk taking is nearly always about our own appetite for risk

You wouldn't jump out of a plane without a parachute so why would you run a business without analysing and mitigating the risks? We're told that taking risks is a good thing to do but what we are really talking about is taking a measured or considered risk - walking into something with your eyes open, not shut tight hoping everything will be okay

A few days ago I took my car to the garage and had to have a courtesy car. The question was did I want to accept a £750 excess or pay a £15 damage waiver?

I didn't have to think long about the decision. In the past three weeks somebody hit me in a car park and left me with some damage on my bumper (but not their name!!) and then I managed to clip my wing mirror. So, it was a no-brainer for me. I can always remember my Grandma saying bad things come in threes.

But what this little story does highlight is how our appetite for risk changes over time and is driven by how we feel that a particular point in time.

When deciding on anything, understanding what can go wrong and what is the downside, is just as important as focusing on the probable great upside. After all whatever you do it's not always going to be plain sailing. You will rarely get from A to B in one move. You may think that A to B in one move is possible, but what is waiting to trip you up?

So, how do you make a "risk" decision? Here are 10 questions to ask yourself to uncover your appetite for risk....

1. What are the actual risks? Define them, all of them, however remote they maybe.

2. What is unlikely probability?

3. What is the likely impact?

4. What time frame are you considering these risks over?

5. What can you do to mitigate both the probability and the impact?

6. What might come in from the field?

7. Which risks can you mitigate so that you are happy to take on the risk?

8. Which risks still leave you feeling anxious?

9. Now  you have a lot more information on which to base you decision. So, walk away for a little while and really think about it. Sleep on it and in the cold light of day make your decision. If you can't make a decision you need to review and research more mitigation before you decide.

10. Review these risks regularly. What's changed in the micro and macro environment, does this change your decision?

Risk taking is around us all of the time. In many cases we have become complacent, but if your appetite for risk is low then you need to make sure that you have identified all of the risks and fully understand what you can and can't do to mitigate the risk.

What risks did you take without enough consideration and did it work out for you?