Taking smart risks

by Brian Tracy

All of life is a risk of some kind. Whenever you engage in any action where the outcome is uncertain, for any reason, you are taking a risk. You take a small risk when you drive to work or walk across the street. You take a larger risk when you start a business or invest a sum of money. You take a risk whenever you venture into the unknown, where your possibilities and probabilities cannot be determined to an exact degree. From the time you get up in the morning until you go to bed at night, and even when you are sleeping, you are facing risk to some degree.

The issue is not whether you take risks. The issue is how skillful you are and how confident you are in taking the right risks for the right reasons in pursuit of the right goals or objectives.

There are basically five types of risk for you to consider.

• The first type is the simplest. It is the risk that is not yours to take. It is the decision that you do not have to make or the gamble that you do not have to engage in.

• The second type of risk is the risk that is unnecessary. You engage in an unnecessary risk when you act without sufficient information or without taking time to think it through carefully in advance.

• The third type of risk is the risk that you can afford to take. Calling on a new prospect, following up on a lead, and exploring a new opportunity all are risks that you can afford to take. In these cases, the cost of failure is very low, while the rewards of success can be very great.

• The fourth type of risk is the risk that you cannot afford to take. The consequences of making a mistake would be too enormous. You cannot afford to bet your whole company or your whole bankroll on a single speculation.

• The fifth type of risk is the risk that you can’t afford not to take. The down side may be costly, but the up side is so exciting that it is very much worth taking a chance to go after it.

Men and women who have achieved a high level of success are intensely realistic. They do not put their trust in luck. They carefully calculate every possible risk, and then think about what they would do should it occur. They always have a backup plan in case things do not go as they wish them to. They have a Plan B and options to that plan that take all kinds of variables into consideration.

Successful individuals engage in strategic thinking. They minimize risk by continually questioning their assumptions and asking themselves what they would do in the case of unanticipated delays, cost overruns or unexpected actions by their competitors. They are seldom caught unprepared because they have thought through the kind of uncertainties that create unacceptable risks, risks they cannot afford to take.

One of the best of all exercises, in every situation involving uncertainty, is to assess and evaluate the worst possible outcome. Ask yourself, “What could possibly go wrong in this situation?”

Remember Murphy’s Law: “Whatever can go wrong, will go wrong.” There are several secondary laws to Murphy’s Law, such as “Whatever can go wrong, will go wrong at the worst possible time,” and “Of all the things that can go wrong, the most expensive thing will go wrong at the worst possible time.”

Another sub law is “Everything takes longer than your best calculation.” In advising businesspeople, I suggest that they take their very best estimate of break-even for any business venture and then triple it to arrive at a more realistic number. Whenever businesspeople follow this advice, they are amazed to find that, in spite of their best initial calculations, it indeed takes about three times longer than they thought it would to start making money.

Once you have identified the worst possible things that could go wrong, make a list of everything that you could do to offset these negative factors. Engage in what is called crisis anticipation. Look down the road, into the future and imagine every possible crisis that could arise as the result of changing external circumstances.

One of the very best ways to develop your ability to take intelligent risks is to consciously and deliberately do the things you fear, one step at a time. You don’t have to leap out of an airplane without a parachute. That is not risk taking. That is simply being foolish. What you do have to do is to resist your natural tendency to slip into a comfort zone of complacency and low performance.

Many of our fears of taking risks turn out to be unfounded. They have no basis in reality. When you test them, you find that they don’t even exist. A very good way to overcome the fear of risk taking is to set clear, written, measurable goals for yourself, and then to review those goals regularly.

When you have clear goals and plans, and you continually work on them and evaluate your progress each day, you will see what you’re doing right and how you could improve your performance. You’ll feel more competent and capable and better about yourself. You’ll become more thoughtful and reflective and willing to take on even greater challenges. You’ll feel like the master of your fate and the captain of your soul. And your fears of taking risks will become smaller and smaller.

You learn how to take intelligent risks without fear by taking intelligent risks and analyzing what happened. When you have clearly identified the risk involved, you can plan and prepare to maximize your opportunities while minimizing those risks. The more positive you feel about yourself, the more effective you will be in everything you undertake. Your ability to confidently take calculated risks in the direction of your goals will ultimately lead you toward success.

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