Who Really Assumes Risk?

"The amount of risk we assume is proportional to the responsibilities we accept."
- Bryce's Law

Not long ago I was meeting with some software developers from a small company who expressed their concern about the risk involved with a project they were working on. They weren't so much concerned about the viability of the project in terms of its impact on the company as they were with the potential effect it might have on their professional careers. In other words, they saw this as a high risk project that could affect them for years to come. This may be true, but from their description I saw their risk as minuscule in comparison to what their employer was gambling which, frankly, was the company's future.

This got me thinking about how we perceive risk in our professional lives. Most employees perceive risk in terms of how it affects them professionally, particularly as a source of income. In reality, it is the employer who assumes all of the risk. If something goes wrong, it will be the employer who will be sued, not the employee. It will be the employer who has to deal with government regulators and creditors, not the employee, It will be the employer who loses financially and faces bankruptcy, not the employee. In fact, most employees do not appreciate the risk required to simply open the company's doors for business. Their life is rather simple as compared to the business owner who agonizes over the company's survival.

Risk is not for everyone, it is for those entrepreneurial spirits who are not afraid of taking a gamble; who recognizes both the risks and rewards for taking it. True risk requires a "Type A" personality (which we have discussed in the past) who knows how to study variables, calculate odds and return on investment, and is willing to assume the responsibility for taking it. It is most definitely not for the faint of heart.

This brings up a point: The degree of risk increases the higher you go in the corporate hierarchy. Whether you are cognizant of it or not, as you assume additional responsibilities in a company, through a promotion for example, you are also being saddled with additional risks, and your success depends on your ability to assume the risks and conquer them. Some people rise to the occasion, others face the Peter Principle whereby they cannot rise above their level of competency. Nevertheless, true risk is assumed by the highest echelons in the corporate structure, regardless of the size of business. And it is this sense of risk that greatly influences our style of management.

We should also understand the difference between taking a risk and being rash in judgment. The two are not synonymous. I always exemplify it by using a game of Craps as found in a casino; the rash person simply throws his wager on the table without thinking, but the person who studies the game and knows the odds before he places a bet is the one taking the calculated risk. The higher you go up in business, the more you appreciate the need for studying the odds.

As any business owner will tell you, employees really do not grasp the concept of risk. I think the following quote pretty much sums it up:

"It is not the critic who counts, not the man who points out how the strong man stumbled, or where the doer of deeds could have done them better.

The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs and comes up short again and again; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best, knows in the end the triumph of high achievement, and who, at the worst, if he fails, at least fails Daring Greatly so that his place shall never be with those timid souls who know neither victory or defeat."
- President Theodore Roosevelt

If you would like to discuss this further with me, please do not hesitate to send me an e-mail at timb001@phmainstreet.com