If you do not try you will not get, as the saying goes. At the heart of success lies a willingness to take risks.
A risk consists of two crucial dimensions: likelihood and impact. The likelihood that you’ll win the jackpot is tiny but the impact – in this case, the amount of money you win - can be huge. This is what is meant by calculated risk: multiply an estimate of the likely impact with the likelihood of occurrence. The estimated outcome indicates the calculated risk.
Of course, the impact is not necessarily the same for everyone. For one person, receiving £100,000 has life changing impact. For another, it’s just an added bonus. Risk appetite, perhaps the most important element of taking risks, is basically a matter of whether you are keen to go for higher numbers or prefer to stay at a lower level. Your risk appetite depends purely upon your character.
Finding a balance
In business and entrepreneurship having a significant risk appetite is essential, but contrary to what people think, risks are not about gambling. If done properly, all risks taken are calculated.
At business level, one rarely takes a single risk, instead making continuous business decisions that carry a certain level of risk. Large companies will carefully balance a selection of high risk decisions or initiatives with low risk. High risks potentially carry the biggest returns, but too many may lead to disaster. On the other hand, too few high risk decisions will allow competitors to move faster and that in itself is a big risk. Risk taking is essentially about levels of exposure.
Essentially, risk taking is about levels of exposure. In the public sector, risk appetite tends to be very low. This is understandable. There are very few rewards for taking risks and the impact of failure is high, both for public sector workers and institutions operating in the sector.
Education and innovation
I recently came across a classic example of the complications that can arise when a government White Paper set out a new, brighter future for the role of higher education in the British knowledge economy. It presented a vision of more innovation and diversity in tertiary education, which has previously been resistant to change, with a low risk appetite.
Reluctance to take risks should be recognised as a big concern since it prevents the sector from embracing a more dynamic approach. At the same time, the default behaviour of the public sector is to control risks. In order to enhance diversity, smaller, specialised institutions will be handed university status more easily; however, this status can easily be taken away again as risk management.
Therefore it is unlikely that these new institutions will want to challenge established norms. They will, of course, carefully stay in the middle of the road, making sure their fragile status will not be jeopardised.
Both these risk controlling approaches automatically stimulate risk avoiding behaviour and therefore defeat the very objective of the White Paper. It is a perfect illustration of the public sector's struggle to balance low risk appetite with the desire to achieve high risk benefits.
Here, the government is seeking a way to manage innovation alongside sector wide risks. When it comes to innovation, the real focus is not so much the risk taking, but the management of the risk of initiatives, experiments and innovation in general. The very essence of risk is that there is no guaranteed outcome. Monitoring whether the risks and results of a venture lie within acceptable boundaries is crucial, and when the outcomes exceed these limits, risk takers need to be able to accept this. But interestingly, when it comes to innovation there is no such thing as failure, as long as you analyse what went wrong and learn from experience. This is an essential step towards mastering risk management.
The line between risk and gamble
Years ago I did some work for one of the world's biggest energy companies and had the opportunity to speak with the chief executive. I said how impressed I was with his board members and how the high rewards clearly attracted people who were different to those you would meet in the public sector.
He went on to explain that if one of his board members did not take at least one risk in a year he would remove them from the board because of low risk appetite. For him, low risk appetite was an indication of failure as business thrives on high risk appetite. Equally, if the explanation on why the risks were taken was unconvincing, this would also spell the end of a career - no company can tolerate gamblers.
Returning to my comment on innovation in higher education, I would suggest accepting innovation as the norm as a good starting point. The focus should lie on how innovation is pursued, rather than policing risks. Even in an environment of relatively low risk appetite, there can be and should be space for innovation.
At a personal level, risk taking can be a great thrill. It can be a major career booster and, in most cases, it is the essence of business success. But one should never forget the importance of calculating risks and the need for assessment of overall risk exposure; recklessness and risks can easily become a lethal combination.
By Professor Dr Maurits van Rooijen, Chief Executive (Academic) of Global University Systems (GUS)