Even the question, “Should you wear a mask?” is a question of risk appetite, trade-offs and strategy
This first appeared on GARP.org
Imagine being at the supermarket stocking up on groceries when you receive a frantic call from your wife that her fever just spiked higher. You’re shaken up and not sure what to do. So, you speed-dial your trusted chief risk officer, who responds, “What’s your risk appetite?”
However, the usual concept of risk appetite doesn’t work right now. These are dangerous times, as we are all dealing with a level of uncertainty never experienced before. In such uncharted territory, how should we think about the risks we’re faced with? How we can make the best possible decisions?
First, and most importantly, we need to identify the risks that we are simply not willing to take – irrespective of any potential personal cost. The decision that Navy Captain Brett Crozier made concerning virus contagion on his ship is a good example. Faced with the choice between the potential deaths of hundreds of sailors under his command, versus waiting on the chain of command to take action (to preserve his good standing with superiors and his future career), he chose the safety and well-being of his crew.
Likewise, if each of us understands these real stress points, we too can identify the non-negotiable risks in our own situation – those that we’re simply not willing to take, no matter what. This puts us in a better position to make good decisions earlier in the process.
Need to Plan
Second, acknowledge the fact that when evaluating risk, we all tend to underestimate the severity and velocity with which those risks can hit. Six months before the 2008 financial crisis, I asked the former CEO of Lehman Brothers, “What’s your strategy here?” He answered, “Save mother!”
Does that answer sound vaguely familiar to the answers we hear from others today? It’s essential to understand that the best decisions in life are made when you have real alternatives. Therefore, take steps now to create realistic contingency plans that will protect you against the downside.
Third, it’s important to understand that risk is the absence of information. There is risk in everything we do because we can’t possibly know all there is to know – there is always information missing in every situation.
No Single Answer
Never has that been truer than it is with today’s pandemic. For example, should you wear a mask, or not? How many times a week should you shop for food? How should you be investing your retirement assets in light of this new reality?
There are trade‐offs for each decision. There is no one-size-fits-all answer for everyone.
I’ve often said to clients over the years: When everyone is out of work, it’s a recession; when you are out of work, it’s a depression. You have to do your own personal risk/reward analysis for your daily actions, financial choices, and other choices that affect you, your family, your community – and, indirectly, the whole country.
Intentions versus Outcomes
Making difficult risk decisions is comparable to kissing a rattlesnake. It is never fun and can be fatal. However, the more you systematically consider what’s really important to you, what information is missing, what the collective wisdom is telling you – committing to evaluating the downside relative to what is really important to you – the better your decisions will be.
It’s much better to have thoughtfully and carefully evaluated the risks than not even to have considered them at all. And if you conclude that you need help to make the right decision, ask for that help sooner rather than later.
Finally, after this crisis is over, the only thing people will remember are the judgment calls you made and the outcomes you achieved. Nobody will give you credit for good intentions – only final outcomes. And the best possible outcome is the result of a thoughtful, disciplined, orderly process that includes collective wisdom and a powerful, laser-focused intention to getting it right.