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Managing Risk - A Calculated Approach

Preventing Success Bleed-Over

Blog post by Gene Benson

Gene Benson is the Senior Human Factors Consultant for Bright Spot, Inc. He is the primary author and the program director of the "Being Better Program."

We know that life is full of risks and that we will never accomplish anything if we totally avoid risk. The obvious approach is to manage risk by evaluating it in accordance with our capability. Then we can decide if we have a reasonable expectation of success. That is the tricky part.

Success in one or even several areas can and should bolster our self-confidence. That may make us more likely to take risks in similar areas in the future. The small business owner who opens a sandwich shop and enjoys great success is more likely to go deeper in debt to open a second shop on the other side of town. If the new shop is successful also, more sandwich shops are likely to follow. The business owner has calculated the risk in accordance with his or her capability. That is how it should work, and many empires have been built this way.

Sometimes this confidence can bleed over into areas in which it is not justified. We all suffer from a cognitive bias called illusory superiority which makes us believe that we are more capable at everything than the next person. Success in one or more areas can enhance our illusory superiority to give us false confidence in other areas.

Perhaps our successful owner of a half dozen sandwich shops decides that the brand should be expanded from a local enterprise to a regional one. The rapid growth and great acceptance by customers provides justified confidence that expansion can be successfully achieved. Our entrepreneur quickly realizes that time is a valuable resource and far too much of that resource is being wasted driving around the region. The obvious solution is to fly but there are no viable commercial options for that.

The decision is made to spend some of that valuable time learning to fly so that a small airplane can be purchased to significantly shorten the travel time. Our entrepreneur earns a pilot certificate and buys an airplane. Unfortunately, illusory superiority bleeds over from the business success into flying. The entrepreneur-pilot falls into the trap and decides to fly to an important business meeting when the weather is beyond the new pilot’s capabilities. The sandwich shop business has lost its leader in a tragic accident.

In a different scenario, a professional pilot at the career peak decides to open a sandwich shop. The pilot has enjoyed great career success as a military pilot and then has worked up to be a captain for a major airline. That success as a pilot bleeds over into the business arena and illusory superiority provides the pilot with the confidence to open a sandwich shop. The pilot has no experience in starting or running a business but has never failed at anything before.

Unable to secure a business loan without providing a personal guarantee, the pilot puts up the house as collateral. The sandwich shop is outfitted with the nicest equipment and furnishings. Signs are made and a modest, but expensive, advertising campaign is launched.

The first couple of weeks provide great encouragement as customers file in. But our pilot-entrepreneur has relied solely on hiring part-time high school and college students to run the shop. They have little training and no supervision while the pilot is out on airline trips. By the end of the first month, word has spread that the service is not good and that many mistakes are being made in the orders. Social media reviews are nearly all negative. After a few more months, the sandwich shop is forced to close, and the pilot is facing a serious financial problem.

We can be better by guarding against allowing our confidence in one area to bleed unjustifiably into other areas. That is not always easy to do because of our innate illusory superiority. To help mitigate the false confidence, we need to find a way to objectively identify the skill sets and personality traits that are required in our new endeavor and compare them to what we have or can reasonably expect to acquire.

One suggestion to help us learn what we need is to solicit the advice of others, preferably people with whom we do not have a substantial personal connection. Family and close friends may not always be objective. We should look for people who have some knowledge of our intended pursuit but would not be competitors to our pursuit. Most people are willing to help if approached in the right way. “I have something I would like to run by you. Can I buy you lunch?” is often a good start.

Once we know what we need to succeed, it is time for honest introspection. But again, beware of illusory superiority. It can be very convincing. Now might be the time to consult with family and close friends. We must be prepared to hear what we do not want to hear, and we must solicit honest advice. These people know us and can probably tell us if we have the traits we need. They will be sympathetic to our feelings so we must stress that there is much at stake and we need complete honesty.

Everything in life that is worthwhile presents a risk. But to truly be better, we must do our best to make it a calculated risk.

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