A big part of your responsibility as a manager is to find ways to do things better—faster, cheaper, and more efficiently. And you need to be successful much more often than you are not. This means you have to always be mindful of opportunities for improvement. It also means you need to be able to execute well.
To use a shooting metaphor, you will not be successful if you shoot before you aim nor if you aim forever and never pull the trigger. You need to aim well, then shoot. Now think about how many more times you would hit the target if you could improve your aim even after you've pulled the trigger—the entire time the bullet is traveling from the gun to the target. This is the purpose of intelligent risk taking.
Intelligent Risk Taking
Risk taking suffers from a spotty reputation because it can lead to bad outcomes. There is a big difference between risk taking done well and risk taking done poorly. Since the goal is to be successful as often as possible, you need to risk intelligently. This is the idea behind the concept of intelligent risk taking, which is also drawn from the book The Power of Risk.
Since a risk is any action with an uncertain outcome, that means most of what you do in your work involves risk. The secret is to steer the risk skillfully—the effort, the initiative, the idea, the process—to a successful outcome. Intelligent risk taking centers around increasing the chances of a positive outcome and decreasing the chances of a negative outcome. It involves six steps:
1. Identifying the risk
2. Assessing the likely outcomes
3. Improving the chances of success
4. Updating the assessment of likely outcomes
5. Conducting a disaster check
6. Deciding and proceeding
Identifying the Risk
As simple as it sounds, this is a critical step. Before you can thoughtfully determine what action you want to take, you have to identify exactly what risk you are taking. You need to commit it to writing and keep it as succinct as possible.
A good example of identifying a risk is: Commit $250,000 to an effort to expand international sales by 40% in 18 months that includes hiring or transferring two employees. A poor example is: Increase international sales. The difference is that the good example is much clearer on what is being risked, the action that is being considered, and the goal of the effort.
Another good example is: Invest $185,000 in an automated inventory control system that will reduce spoilage and inventory loss by 8%. A bad example of the same idea is: Buy an inventory control system that will decrease inventory losses.
Assessing the Outcomes
Next determine the range of outcomes and the chances of each. Do not make this step too complex unless you are considering a very expensive or involved initiative. Identifying a best-case outcome, a mid-case outcome, and a worst-case outcome is likely to be enough in most situations.
Using the risk identified above related to increasing international sales, your possible outcomes could be something like these:
Best Case Outcome: International sales increase 40%.
Middle Case Outcome: International sales increase 20%.
Worst Case Outcome: International sales do not increase.
Now, based on thoughtfully assessing the state of the market, economic vitality, competition, the quality of the people you think you can find for the initiative, and any other factors you choose to consider, assign a likelihood to each outcome as a percentage. This may be as follows.
Best Case Outcome: International sales increase 40%. Chance of this outcome is 30%.
Middle Case Outcome: International sales increase 20%. Chance of this outcome is 50%.
Worst Case Outcome: International sales do not increase. Chance of this outcome is 20%.
As you can see, the total of the possible outcomes is 100 percent. Yours need to total to 100 percent, also.
Let's take a look at what you have gained so far from this process. You have clearly stated exactly what risk, effort, idea, or initiative you are considering. That in itself is valuable because it will help you keep focused on exactly what you are assessing and not get distracted by what you are not assessing. You have also identified the likely outcomes of the effort and the estimated chances of each. By doing this, you are practicing a good deal of mental discipline. Even without the rest of the steps, you are already getting value from the process because you are being thoughtful about what you are considering and what you hope to gain from it.
Improving the Chances of Success
This is the most important and valuable step of the intelligent risk-taking process. The most significant way you improve the chances is by identifying success enhancement measures. Success enhancement centers on developing "possibility of success enhancement measures,"—POSEMs for short—pronounced similar to the name of the animals known for being able to fool you into thinking they are sleeping when they're not: opossums.
A POSEM is any effort that can improve the chances of a desirable outcome and/or reduce the chances of an undesirable outcome for the initiative you are considering. Examples of POSEMs for this initiative include:
Hiring people who have been successful in pursuing a similar effort. In this case, that may mean finding people with experience in international sales. It would be even better if they have experience with the product or service they will be selling. Better yet, in the same foreign markets they will be approaching. The point is to reap the benefit of the experience of the people you select.
Investing in market research to get a more authoritative assessment of the potential and competition in each of the countries the team will be pursuing.
Partnering with local distributors or providers in the markets you will be pursuing to get the benefit of their local knowledge and connections.
Identifying and implementing POSEMs is not an original idea. It is the role of all managers to identify ways to reduce risks that are part of nearly every day's work. POSEMs are your opportunity to be creative, to think expansively. When coming up with POSEMs, give yourself permission to think "out of the box." You will not use every idea that surfaces, but you will miss some good ideas if you do not allow yourself to think broadly. Ask yourself, "What if . . ." questions. "What if we had the best people?" "What if we had unique insights?" "What if we could create a distinct advantage over our competition?" Then ask yourself how you can do these things.
Many POSEMs involve doing some research. Think about all the assumptions you are making in assessing the outcomes. Now think about all of the assumptions that you would be wise to validate. Being better informed will help you make a better decision. Just don't fall into the trap of waiting until you have an answer to every possible question before you make a decision. By then the opportunity will likely have passed.
Updating the Assessment of Likely Outcomes
If you identified some powerful POSEMs and have a plan to implement them, they will have a positive impact on the likely outcomes. For this reason, the chances of each likely outcome need to be updated. For purposes of illustration, let's assume you proceed with the three POSEMs listed above and they affect the likely outcomes in this way:
Best Case Outcome: International sales increase 40%. Chance of this outcome increases from 30% to 50%.
Middle Case Outcome: International sales increase 20%. Chance of this outcome decreases from 50% to 40%.
Worst Case Outcome: International sales do not increase. Chance of this outcome decreases from 20% to 10%.
As you can see, the total of the chances is still 100%.
The POSEMs have had a profound impact. They have significantly improved the chances of increasing international sales significantly. This is the power of the intelligent risk-taking process.
Conducting a Disaster Check
Before making a decision on whether to proceed with the risk, effort, idea, or initiative you are considering, you need to conduct a disaster check. A disaster check just means asking yourself if you can live with the worst possible outcome. What is the worst thing that can happen, and is it survivable?
With the example we are using as an illustration, it appears the worst case is investing $250,000 and getting no increase in international sales. The question is whether this is a survivable outcome. If it would destroy the organization or your career, the answer is probably no. If you can live with it even though you will be very disappointed, then the idea has passed the disaster check. You are now ready to move to the final step of intelligent risk taking.
Deciding and Proceeding
You have now identified the exact risk, effort, idea, or initiative you are considering and ways to improve the chances of a good outcome. You have also quantified the chances of various outcomes and subjected the idea to a disaster check. It is now time for you or those involved in the decision-making process to make a decision. Before you do, consider one more important element—you never stop identifying and implementing more POSEMs.
We started this discussion of intelligent risk taking by equating the decision-making process to the ability to steer the bullet toward the target even after it has left the gun. This is exactly what continuing to identify and implement POSEMs does for you. If you are creative and diligent, you should be able to continue to improve the chances of a desirable outcome.
It is now time to decide. You may choose to go forward or you may not. Deciding not to proceed may be the best decision. Regardless of what you decide, you can make your decision confidently knowing that you made a very well-informed and thoughtfully considered decision. That is what managers are paid to do.
Excerpted, by permission of the publisher, from The First-Time Manager Sixth Edition) by Loren B. Belker, Jim McCormick, and Gary S. Topchik. Copyright 2012, AMACOM, a division of American Management Association. Published by AMACOM. For more information: www.amacombooks.org