Details
  • 25 September 2014
Share

Psychology of risk management in business

Women and men are programmed psychologically to differ in risk-taking in business, but both are taking more calculated risks in 2014 following the battering the UK took in the last recession. This is the view of cognitive psychologist and business improvement specialist, Dr Lynda Shaw, who explains more in her latest blog. 

If risk is the potential of losing something of value, weighed against the potential to gain something of value then we make those sorts of decisions all the time – whether it be to sell a million pound of shares, or crossing the road. However, most of us have personalities that can be categorised as risk avoiders or risk takers in business. 

In addition, there are gender biases in risk taking, although we have to be mindful of stereotypes as after all, we are not just products of chemicals and anatomy; age, culture and environmental factors also come into play. That said, the prefrontal cortex (PFC) is larger in women and regulates emotional responses. The amygdala is larger in men and is pivotal in emotions. One could argue that women are therefore more likely to control risky behaviour. 

When weighing up risk, men are more likely to be concerned with hitting objectives, whilst women tend to be more concerned about the effect the risk will have on people involved. Male risk-taking tends to increase under stress, while female risk-taking tends to decrease under stress. It could be argued that in a stressful business situation, men and women working together would make better risk-taking decisions than either gender alone. 

During a recession, we are generally more likely to lack confidence and so become more risk averse, but now as the economy is growing, we need to approach risk with calculated confidence. This therefore means that broad areas of the brain are involved with the whole process of calculated risk taking, leading to creative thinking, problem solving and decision making. 

Calculated risk should not be considered reckless. Risks to an international enterprise may be concerned with answering to their shareholders, whilst a small start-up may have risks associated with taking their first office space. 

With any decision, you’ll always have an element of risk and it demands confidence and belief in yourself. Sometimes the risk won’t go our way so it becomes something to learn from. There may also be risks which were not accounted for, so always be aware of a possible change in direction. 

Here are my top risk taking tips: 

Show confidence: Don’t be a satisfied follower. Have the confidence to take charge, to think on your feet and to solve problems effectively. Don’t over analyse as you can talk yourself out of anything. Follow your instincts and be bold. Think carefully about risky decisions, but do not procrastinate once you once you have made your decision. 

Don’t think you know it all: It is best to explore what risks work and what need more planning to optimise the success level. Don’t think you have all the answers. Ask the experts and then make your own decisions. 

Learn from your risks: Lessons which are learnt when taking risks within the business may lead you on an important new path. Learning from mistakes is an opportunity for growth. 

Acknowledge multiple opportunities: Be focused on what you want to achieve from taking risks. If you zoom in on it too much, you may miss opportunities. Zoom out and the opportunities will come into clearer view. 

Review outcome of the situation: After the decision has been implemented and all risk has been mitigated, evaluate the success of the outcome and how the risk-taking has affected the business.