The Harbour Pilot

Its all about risk - those you need to take, those you can reduce, those you should grab hold of with both hands. The truth is, everyone, with a business or without, for-profit, and not-for-profit, takes risks every day. The field of business is the study of risk, and how to make it beneficial, for oneself, and in fact for society at large.

Every day, there are decisions to be made, information needed to make them, and a framework within which they are made. There is no escape. Getting out of bed is a risk - and staying in bed can be an even greater risk! Your choice is whether you will understand the risks and bring them under greater control, or be run by the risks. Each of us makes this choice.

I define humans as mammals which confront risk, try to manage it, and create their means of survival from controlling it. This is our evolutionary heritage, courtesy of our pre-frontal cortex - the planning, execution, monitoring and correction features of our brains.

This human experience is not unique to business people. It is just as true if you are a performer on a stage, a politician attempting to represent you constituency, or an academic conducting research. Embracing risk is part of the creative process for every discipline.

There are many examples of approaches to risk - probably one from each field of human effort. In the medical field, the risks of ignorance have led to the dictum of ‘First, do no harm’. In the legal profession, the stance of innocent until proven guilty is a guard against the risks of false positives or faulty convictions. Civil engineers routinely over-specify structural members to ensure that in any circumstances bridges and buildings will not fail, to guard against the risk of unforeseen hazards. My favourite, however is the case of the professional gambler.

Consider poker. From a deck of cards, a number are dealt to players. From mathematics, experienced players are aware of the potential likelihood that a given set of cards have been dealt to a single player. Four aces in a hand are very rare. Players use this knowledge to make decisions on how much of their stake to bet that four aces will be better than any other hand. There is more information available however - there is a series of communications as well, as other players make their bets. The information could be rational - based on probabilities, or it might be irrational - based on anxiety or over-optimism. It could even be disinformation - a bluff. The actual size of the bet our four aces hand makes is also influenced by the size of our remaining stake, and what the potential reward of winning the hand might be. Every poker player is a unique human being. Each must assess the others’ tendencies and set the decisions they observe within a framework of their adversary. This leads to some observations.

First, information is vital to the decision making process. In business, this information is extensive, ranging from general economic conditions, to the information of potential clients, to the positions of competitors, to the performance of your own operation.

Secondly, a business operates in a human environment, made up of clients, competitors, employees, staff, associates, and most importantly, yourself. An inability to grasp and model human behaviour, and to extract from this information valuable decision inputs, can be fatal.

This blog is an exploration of risk and creativity in human endeavors, and the unique approaches that the business person brings to the challenge.