Risk is an integral part of our daily living. Virtually every human activity is fraught with risks. The implication of the prevalence of risks is that the best we can do is to minimize their adverse effects on our desired outcome. The concept of risk and risk management is a big business globally. It’s so big that a whole entire industry (insurance) attends to its needs; this is aside the growing population of independent risk managers.
In life, we face three possible outcomes based on the amount of information we have at the point of making decisions: uncertain, risk and certain. Certainty results from having access to perfect information. Since no one has perfect information, certainty is considered as utopian condition we aim to achieve. In the meantime, we tug with uncertain and risk situations.
Uncertain situations arise when we have no information that would assist us in arriving at our desired outcome. Such situations are to be avoided altogether through information gathering. Any decisions made under uncertain situations are a gamble. On the other hand, we are to be embrace risk situations because they provide us the platform on which we can make attempt at certainty.
For the purpose of our discussion here, we define risk as volatility (unpredictability) of a desired outcome and the measures taken to minimize this volatility are termed risk management.
Types of risks
There are as many risks as there are human activities. We would however restrict ourselves to two broad classes of risks as they relate to individuals: direct and indirect risks. Direct risks are those you face as a result of your own activities whilst the risks you face as a consequence of the activities of others are indirect risks. We will focus on direct risks here.
How risk situations arise
Risks arise because it is impossible to determine the outcome of any particular course of action (decision) that we choose to take with certainty. All other things being equal, the only situations of certainty you have are your current realities: the apartment you live in, the car you drive, the job you have, your current friends, etc. Even then, these realities are subject to change over time. Nonetheless, when you decide to pursue something outside your current realities (‘comfort zone’), you enter into risky zones.
It’s advisable that you move out of your comfort zone in spite of the inherent risks because what you call comfort zone now was some time ago a risk zone. For instance, two years ago, the thought of becoming self-employed was, at best, nightmarish for me. My nightmares came out of the thought of meeting my immediate family needs from insufficient personal resources. But today, even though the challenges are daunting, self-employment has ceased to be a nightmare it once was.
Importance of risk management
One of the most important skills you need in life is risk management. At the primary level, a good understanding of risk management or lack of it determines those who survive and those who perish. At the secondary level, it’s a distinguishing factor between successful people and also-rans.
In theLagosmetropolis where I live, an unconfirmed report states that at least five (5) people are killed daily from accidents involving motorcycle riders. The main reason for this alarming statistic is because most people have poor risk assessment capabilities. Besides the fact that they don’t wear crash helmets, the mannerisms of these riders smack of people on a suicide mission.
The objective of risk management
The primary focus of managing risks is to reduce the volatility of a desired outcome. Risk management process starts with defining the expected outcome, identifying risks that may adversely affect the realization of the expected outcome, assessing / analyzing the potential impact of identified risks and proffering measures to mitigate the risks.
You can apply this risk management process to just any outcome you desire.
A personal risk management model
Just like your DNA, you need a risk management model that’s distinctly yours. A reference to a model is not suggestive of having a documented algebraic equation that you call up each time you need to analyze risk situations. It will suffice to have a cognitive recognition of your own risk management process.
Designing your model starts with knowing your risk appetite, which could be one of three types: risk lover, risk neutral and risk averse. Irrespective of your risk appetite, you require risk management skills in order to reduce the unpredictability of your desired outcome.
On the basis of your risk appetite, you then come up with your risk philosophy – a set of rules that guide the risks you undertake. Once you have your risk philosophy, the golden rule is that you adhere to it strictly.
I am risk averse by nature. My quest for certainty of outcome in everything I do could be overwhelming. However, I am never rooted to a spot because I understand and appreciate the need to make progress in life. Therefore, my guiding philosophy as I jostle these competing desires is sustainability. I am always testing my levels (current and desired) for sustainability. To this end, I try as much as possible to do my homework before embarking on major decisions that could have serious adverse consequences on my family and me if things go awry. When I get to a desired level, I make consolidation at the new level my focus before seeking out another desirable level.
My desired outcome when I was planning to quit my job was sustaining my family living standard in four critical areas: feeding, children’s education, accommodation, and medical. The primary risk factor was a huge drop in income that would put my family life in jeopardy and the secondary risk factor was idleness (having nothing to do with my time). It took me four years before I eventually disengaged.
Some of the risk management steps I took preparatory to quitting the job include reading books like Robert Kiyosaki’s ‘BEFORE YOU QUIT YOUR JOB’ and HALF TIME by Bob Buford. The books coupled with discussions with friends that have made the jump from paid employment to self-employment availed me some information on potential risk areas and how to mitigate such risks.
The major challenge was how to generate reasonable cash flow that would keep the family going. This aspect remained hazy until I left. I eventually took a leap of faith against a worst-case scenario thinking that I would realize my investments if need be.
I mitigated the secondary risk factors by taking courses in management development courses to fill up my idle time. During the courses, I made new friends some of whom had been in self-employment for a reasonable length of time while some had just left their jobs too.
All the risk management steps taken didn’t insulate the family and me from shocks that my disengagement brought. However, things would have been disastrous if I hadn’t taken those steps. Now I find joy in that the bold move has enlivened my faith in God. In addition, my self-esteem has also soared because it was a decision I had always wanted to take. I had always thought, “Someday, I would be in a position to decide what to do with my time.” Though the day came a year after the target date, I am glad that it came, the challenges notwithstanding.
No one can avoid risks. In fact, those that attempt it end up being victims of the risks they try avoiding. To guard against the allure of playing safe by avoiding risks, Jesus admonished his followers saying “…whoever desires to save his life will lose it, but whoever loses his life for my sake will find it” (Matthew 16 verse 25). In the near future, I will share how you can attain the certainty of outcome in any areas you desire to. Please share this article with your friends and colleagues. They can also subscribe to receive articles on ‘Personal Development for Significant Living’ through the link http://waleadeniranye.com.