r-i-s-k: it’s amazing that so simple a four-letter word can be so complicated.
by bruce w. marcus
there are risks with dire consequences and risks with negligible consequences. there is risk in every human enterprise; in every trade or endeavor. we take risks, in varying degrees (and sometimes unwittingly) every day of our lives. there is even risk inherent in getting out of bed in the morning. but what – on any level – does risk really mean? can risk be tamed?
there are different degrees of risk, depending upon how great the opportunity to profit if you succeed, how dangerous if the risk you take portends the possibility of failure, how much is at stake if you fail.
the great oxford unabridged dictionary virtually dismisses risk with a simple definition – to hazard; to endanger; to expose to the chance of injury of loss.
but to better understand and manage any kind of risk requires a more precise understanding of it – in fact, a better definition is needed. the value of consciously understanding the nature of risk, particularly the risk of dire consequences, is that understanding delivers the greater promise of the wiser choice.
risk, i believe, is pursuing a course of action the outcome of which depends for success on factors over which we have no control.
one classic misconception of risk suggests that the greater the risk, the greater the return. not universally so. (for example, sometimes risk is necessary to minimize loss.) sometimes, the kinds and degrees of risk overlap. and sometimes, the greatest risk of all is doing nothing, which is as much a decision as doing something. choosing to not act is merely the obverse side of doing something, and should be considered in the same way as you would a risk in taking an action.
is that all there is to it? of course not. it’s much more complicated than that, and the meaning is colored by context. when you buy a lottery ticket, you’re risking only a couple of bucks on the slender chance that you’ll make thousands of dollars. not a risk worthy of the name (unless you’re playing with your rent money). when you risk a career – or maybe an entire firm – on the chance that an innovative tax shelter program is legal, or that a litigation strategy will keep your client out of jail, that’s a significant risk. when you gamble that you won’t get caught embezzling from your firm, or that your imaginative tax return won’t be audited, you risk jail or a fine.
when you falsify a tax return, you cannot generally control the possibility of being caught by an audit. assuming an honest game, we can’t control a horse race or a ski jump or even a card game. when you write an article or a brochure, you can’t control how it will be received by its intended audience (writers, especially the best, live with this constantly). when you invest, you risk your knowledge and intuition against that of the volatile securities market. when you advise a client in any matter of accounting, there is risk inherent in the accuracy of your advice. yes, skill and experience can often mitigate the degree of control we might have over the outcome. with skill, judgment and experience you can eliminate some – but not all – of the factors that are beyond your control.
in marketing, there is risk that a marketing program will in some way backfire. there is certainly risk that a seminar will not be attended, that an article won’t be published, that an ad campaign won’t impress the marketplace. and the more extensive – and expensive – the program, the greater the risk.