Introduction
by Nigel Nicholson

In business everyone is a decision maker, and every decision maker takes risks.

For some people - fire-fighters, City traders, entrepreneurs - risk is right in the centre of their visual field, the heart of their profession. But risk is actually a central consideration in a much wider range of occupations, and in many aspects of our daily lives. Our money, our relationships, our jobs and our lives are all at risk from time to time.

The problem is that we tend not to view the world that way. Most of the time we are unaware of risks that we bear in a million everyday acts, in and out of work, and when we do think about risk, our minds are apt to fill with big and largely false imaginings. We think more about unlikely hazards, like airline crashes and threats to our organisations, than we do about traffic accidents or unexpected errors at work. We are often comfortable for others to be the risk takers whilst turning a blind eye to the risks we run. At other times, when we are confronted by challenges, we tend to have exaggerated and often inaccurate perceptions of risk.

Even experienced risk professionals - such as surgeons, bankers and business leaders - do not think straight about risk. The finest mind and the sharpest intelligence offer no protection against many of the errors and distortions that infect risk judgements, as will be illustrated in the pages that follow.

This book clears all the fog around this important topic and brings it into sharp and relevant focus for every business person. It is vital that we take risks, for otherwise we cannot achieve our ambitions. It is not an option to seek a risk-free life since that will only incur greater dangers later. Let us consider some examples.

Are you a leader or people manager? If so then you will no doubt accept that risk is always close at hand, but is it where you think it is? Is it as controlled as you would like it to be?

As a leader you will be likely to associate risks with the big strategic moves you undertake, but there are risks in many other quarters: in the key appointments you make; in the kinds of information and advice you seek when making decisions; in the calculus you deploy to quantify the costs and benefits of operations; and in your own capability to become aware of and react to the unexpected.

In this book leaders will find examples of both the large and small risk decisions that are typically confronted, how they go wrong, and how unnecessary dangers can be avoided.

Are you a professional delivering a service? Big risks and errors are not just in the areas that come with numbers attached to quantify the dangers. They lie in some of the least considered areas of service delivery - like entrusting a critical client interaction to a new colleague, or in drafting a report that treads a fine line in terms of what is stated or disclosed.

As we show in this book, there are many other alternatives between simply taking and avoiding a risk, strategies that allow you to take risks at controlled levels that enable you to get closest to the results you want.

Are you a technical specialist? Risks can often be quantified in terms of tolerances and probabilities, but these do not tell the whole story. Important risk-related processes both precede and follow risk taking, in terms of states of readiness to bear unexpected risks, and in how one judges and learns from the consequences of risk taking. Context is critical. In many highly technical worlds the risks might appear just to depend upon the immediate environment and skills of people like you, but often there are key forces at work in the surrounding business structures and cultures. The world of finance illustrates this. Norms governing the way information is processed and how errors are detected, and how managers deal with the aftermath of trading losses and gains, are all as critical as the immediate zone of action and decision.

Some parts of this book are quantitative. It is essential, wherever possible, to attach numbers to probabilities and costs within risk domains. Often the right numbers are not available, and much can be done to generate the metrics that really do reflect the risks that are important to us.

But even when presented with relevant data, even experienced professionals are apt not to use them correctly. Probability and uncertainty are poorly understood concepts and often wrongly assessed by people whom we might expect to know better.

Without getting incomprehensibly technical, in this book we aim to give laypeople and professionals alike a clear line of sight through this often-confusing numerical thicket.

But risk is not a mathematical phenomenon. It is intensely human - linked by an umbilical cord to human desires, impulses, instincts, sentiments and naive beliefs. We humans were not designed for precise probabilistic computation, accurate calculus and straight-line reasoning; our mental capacities are more attuned to confidence in action, self-belief, speedy intuition, focused attention, endurance and willpower. These qualities are mainly what one needs to navigate complex social networks, dare to venture into new domains, to get out of physical danger, to overcome obstacles and to keep one's clan together.

Evolution gave us a repertoire of emotions and a filter system of cognitive biases that were extremely helpful to survival and reproduction in the ancestral world of our origins as clan-dwelling nomadic hunter-gatherers. But now we inhabit a fast-moving, highly technical world of operations, production and services that make demands on us for which we have no special capability. Our only defences in this world are our insight and corrective measures, which can help us become aware of the risks we are running and know when to seek the aid of statistical and other control systems.

These are matters of psychology, information management, leadership and culture. The present volume encompasses all these dimensions. It is about how we can think more clearly about risk. How we can ensure we have the right information to make risk judgement calls. How we can develop confident risk-management strategies. And it is about how we can encourage the development of organisational cultures that support risk intelligence.

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