Risk

One of the most important elements in business is risk. It is a commonplace that there is no profit without risk, and that every decision is risky (which is why some people avoid making decisions at all). In the standard Kraljic model of procurment one access is about money, and the other is about supply risk. Unfortunately, human beings are particularly bad at correctly accessing and understanding risk. Even when we have correctly assessed the risk, we often then fail to address it in the appropriate manner. As simple examples, many people are scared of flying when statistically the most dangerous part of the journey is driving to the airport. Having worked in the chemical industry, it is also a fact that despite eye catching disasters such as Bopal and Flixborough, again the most dangerous thing in the chemical industry is driving to work. We all also react irrationally to circumstances. We base our assessment of risk on previous experience. So we may drive too fast thinking it is safe because we have never had an accident. Or put in new security systems because we feel the neighbourhood is unsafe after being burgled. In both cases the actual risk is the same before and after - but we perceive it differently, and react accordingly. (actually there is a slightly increased risk of being burgled again, because some burglers wait for you to replace all your stuff on insurance and then rob you again...). These are unconsious attitudes - partly hardwired, and partly based on experience. But they do affect our ability to be successful in business. The BBC has an interesting experiment that takes about 20 minutes here. It not only gives you some feedback on your personal attitude to risk, but also provides data for a study that will help academics at the University of Cambridge. Well worth the time.