“If you risk nothing, then you risk everything.”
You are sitting in a small airplane with three of your friends and you are flying across a vast open landscape. You are wearing a helmet and have a parachute strapped to your back. You and your friends decided it would be a great idea to try out sky-diving. And now you are here, a few thousand meters above the ground, ready to jump.
How do you feel?
If you are anything like me, you are absolutely terrified wondering what made you agree to such a crazy idea. On the other hand, you could be so excited that you cannot sit still, because all you want to do is to jump first. Which of those two do you identify with? The answer to that question will give you a clue as to whether you love taking risks or whether you are risk averse. Matthew Tull defines risk-taking behaviour as the “tendency to engage in behaviours that have the potential to be harmful or dangerous, yet at the same time provide the opportunity for some kind of outcome that can be perceived as positive.” In the social environment these behaviours include smoking, drinking, taking drugs, reckless driving, gambling and, of course, sky-diving. All of these activities lead to positive feelings while you experience them (well, for many of us), but they also put you at risk for serious harm, such as an accident or death.
Risk-taking and personality
Research indicates that the propensity for risk-taking behaviour is rooted in personality psychology. One of the most well-known researched personality traits associated with a general risk-taking disposition is impulsive sensation seeking – a term coined by Marvin Zuckerman. Sensation seeking can be defined as “seeking […] varied, novel, complex, and intense sensations and experiences, and the willingness to take physical, social, legal, and financial risk for the sake of such experience.” (Zuckerman, 1994). Impulsivity can be described as “the tendency to enter into situations, or rapidly respond to cues for potential reward, without much planning or deliberation and without consideration of potential punishment or loss of reward. “ (Zuckerman & Kuhlman, 2000). Impulsive sensation –seeking has been found to correlate with high-risk activities such as smoking, drinking, taking drugs and having sex. Much research has also focused on the Big Five factors, Neuroticism, Extraversion Openness to experience and Agreeableness (Costa & McCrae, 1992). These five traits are seen as universal, as they have been found in numerous cultures, countries and languages. They are considered to be stable and consistent during an adult’s working live and have been shown to predict workplace behaviour and success over the long term. High Extraversion, which includes the facet excitement seeking, similar to that of Zuckerman, and high Openness to experience have been associated with increased risk taking propensity, whereas high scores on Conscientiousness and Neuroticism have been found to be associated with a lower risk tolerance. Of course the propensity for risk taking applies not only to the personal but also to the organisational level.
Risk-taking behaviour in the organisation
Decision making in organisations involves risk on all levels of the organisation. Risk-taking behaviour is relevant to making decisions in areas such as health & safety, investments, innovation and design. The higher the person is situated within the organisation, the more important it is to understand what type of risk and how much risk that person is prepared to take, as the impact of his or her decisions has far reaching financial effects.
Let’s look at two examples; Enron and Kodak.
Enron, a natural gas company, incurred huge financial losses due to top management making risky financial decisions that subsequently resulted in falsifying of accounts, and finally led to bankruptcy. The company’s greed and unethical behaviour from top management all the way down, led to 20.000 people losing their jobs, stocks and retirement savings. Kodak invented the roll film (remember the small yellow film rolls?), which replaced the photographic plates and paved the way for photography to become a hobby of the masses. Then digitisation arrived. Ironically, the first “digital camera” was invented by an engineer within Kodak. However, Kodak management decided not to pursue the digital route, as they feared that going digital would destroy film, the company’s main income stream. As we all know, digital photography took the world by storm. Kodak subsequently filed for bankruptcy protection in 2012. Although it recently emerged from bankruptcy, its workforce was reduced from 145 000 at the height of its success to 8500 people today. These two examples clearly show that taking too much risk can be as detrimental to a company as taking too little risk. Of course risk taking behaviour is not only influenced by a person’s personality but also by environmental or situational demands. How we perceive and evaluate risk affects our decision to ignore a situation, take action or avoid the circumstance that the risk poses altogether. Risk taking can be influenced by a number of factors, for example how we experience our work environment, our previous experiences when faced with a particular situation, our current stress level, financial worries, group pressure or fear of consequences. As the above discussion indicates, people often represent the greatest risk to a company. When thinking of areas such as health & safety, investments, innovation and design, it is therefore insufficient to focus only on the physical conditions or company procedures to alleviate risk.
So then, how can we manage human risk in the workplace?
Human risk can be managed at various points in an organisation,
- at an individual level, during selection, re-deployment and personal development,
- at the team level, through understanding one’s own and other team member’s propensity for risk, and
- at an organisational level by understanding the risk culture of an organisation.
Taking risks is part of every business. Understanding your managers’ and staffs’ risk profiles is important, as their decisions have an effect on your company’s bottom line. The recession has certainly put a damper on risk taking since 2008. But with the recovery looming on the horizon, risk taking behaviour will be in demand again. Make sure that you place the right people in the right positions by matching the risk profile of your employees with the job in question.
The Risk Type Compass®
Psychology Consultancy Ltd (PCL) published the Risk Type Compass®, which allows for risk assessment at all the above levels. The Risk Type Compass® is a well-researched personality based assessment that focuses on how individuals perceive and handle risk, and make decisions. It places individuals into one of eight risk types. These risk types reflect the individual’s natural disposition toward risks, for example, whether he or she is naturally optimistic and adventurous, or rather cautious and fearful about uncertainty or risks. As an individual’s attitude to risk may vary from situation to situation due environmental or situational circumstances, as discussed above, the Risk Type Compass also assesses an individual’s difference in risk attitude across five risk domains, namely financial, health, safety, recreational and social. Finally, by combining both factors, the risk type and the risk attitude, the Risk Type Compass ®offers a Risk Tolerance Index, which indicates an individual’s general tolerance to any kind of risk or uncertainty.
References and additional information
Costa, P.T. & McCrae, R. R. (1992). Revised NEO Personality Inventory (NEO-PI-R) and NEO Five-Factor Inventory (NEO-FFI): Professional Manual. Odessa, FL: Psychological Assessment Resources. Enron: The fall of a Wall Street darling. Retrieved from Investopedia: http://www.investopedia.com/articles/stocks/09/enron-collapse.asp Kodak emerges from bankruptcy with ‘tech’ focus. Retrieved from http://www.canberratimes.com.au/it-pro/business-it/kodak-emerges-from-bankruptcy-with-tech-focus-20130904-hv1m4.html Managing Risk. The human factor. Retrieved from http://www.slideshare.net/gracewalshPCL/managing-risk-the-human-factor 63rd AMEU convention (2012).Optimising health and safety management by job task to risk behaviour profile matching. Retrieved from: Risk Type Compass ®. Retrieved from http://www.psychological-consultancy.com/products/risk-type-compass/ Tull, M. (2009). Risk taking. Retrieved from http://ptsd.about.com/od/glossary/g/risktaking.htm Zuckerman, M. (2007). Sensation seeking and risky behaviour. Washington, DC: American Psychological Association. Zuckerman, M. & Kuhlman, D.M. (2000). Personality and risk-taking: Common biosocial factors. Journal of Personality, 68, 999-1029. Photo Credit: puffclinty via Compfight cc