Posts Tagged ‘Risk Tolerance’

What Is Your Risk Tolerance?

Monday, July 20th, 2015
It is all relative

It is all relative

Marketing guru Seth Godin posted a blog entry today about the paralyzing consequences of irrational fears, such as shark attacks (which, notwithstanding television news stories, are extremely rare events). He advises that it is “better to prepare for a hazard both likely and avoidable instead”. His comments were in the context of taking on challenges by setting aside irrational fears but, of course, are exactly consistent with the advice given in Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses. It is a mistake to focus your attention on high-severity, low-frequency risks, such as hurricanes and earthquakes as the fear can be paralyzing. Better to prepare for the “everyday disasters”, such as human errors, computer crashes, fires and the like. This approach provides an immediate benefit against a more imminent threat at a more reasonable cost. And it gradually builds resilience against the more severe, but less likely, threats.

Attorney Brett Dawson offered his take on risk tolerance at a legal workshop for small businesses at the SCORE (Service Corps of Retired Executives) “Learn to Soar” program in Rochester, NY earlier this month. I have pages of notes from that workshop to capture his helpful insights from years of advising small business owners. He said that many business owners tend to dismiss risks as “unlikely as being struck by lightning.” But, in fact, 2500 people are struck by lightning each year in the United States and 60 of them die. While being struck by lightning is not likely to happen, it is not a non-zero risk, the point being, if there is a risk,¬†however negligible, that you can eliminate, do so, as there is no benefit to assuming it. ¬†Whether your point of reference is a shark attack or a lightning strike, a pragmatic approach to risk tolerance is best.