Have you ever heard this quote? “Good decisions come from wisdom. Wisdom comes from experience. Experience comes from bad decisions.” (Anonymous) It’s clever, but I believe wisdom also comes with more proactive risk management.
We all manage risk every day. We look both ways before we cross the street. We research products before we buy. We solicit others’ input before we make decisions. Most of our decisions are made fairly quickly. We can calculate the risk in our head.
Do big decisions require more risk management? You would think. But I came across this short quality video that relives the space shuttle Challenger tragedy, Toyota’s floor mat and brake problems, and the BP Oil disaster. These were all respectable organizations. Yet, each of these three famous examples involved poor decision making and risk management – on a massive scale. Each case cost billions of dollars and the loss of lives. And the cost of prevention? Only a tiny fraction (<.1%) of the losses. It came down to:
– A faulty o-ring seal and the temperature during the shuttle launch
– Conflicting goals of sales growth vs. quality, as well as employee involvement issues at Toyota
– A simple 10-hour cement test at BP.
Can it happen in your business? I’m willing to bet that you and I are just as susceptible to these errors in judgment. The impact may be smaller but the risk is still there. So is the relative magnitude between risk and prevention. The reasons? We have the same sense of urgency. We face similar budget constraints. And it’s just as easy to fool ourselves into thinking any one decision is too small to be significant. Think again.
Here are some common costly decisions:
– Skipping the interviewing and vetting process for business partners and other key employees
– Ignoring budgeting and forecasting and mismanaging spending
– Tentative or random strategies and execution; lack of focus
Businesses can lose years of progress due to these decisions. Yet, the prevention could be measured in hours! How do we convince ourselves we don’t have hours of time for interviewing, forecasting, and strategic planning? Why settle for years of the inevitable failures in revenue and cash flow, frustration and stress levels, and/or loss of reputation?
Maybe our bad business decisions won’t make front page headlines. But proactive risk management could still save us a thousand times over and prevent a more personal disaster.
Or would you prefer to achieve wisdom based on “experience?”
Edward Livesay
