Preparation beats prediction

One of my favourite strategy workshops to run is about strategic risk - preparing for the worst. I recognise that sounds dire, but I promise it isn't. 

Working out what might go wrong is one of my favourite strategy conversations. Getting honest about what stands between us and our big goals is one of the most critical steps to move us from thinking-and-dreaming into doing-and-delivering.

Things you should know about risk

But we're weird about risk. I get it. The words' risk management' inspire equal parts boredom and confusion in me too. I think it's because we over-complicate and under-value risk. Here are a few things I'd like to set straight.

1. Risk is neutral.

Risk is not inherently negative. It's a chance that something will get in the way of us achieving our goals. Once we work out what those things are, we can decide what, if anything, to do about that. But the very existence of uncertainty isn't a negative thing. The primary way to reduce uncertainty is to stick to the status quo and avoid doing anything new, and that carries invisible risk of it's own.

2. Prediction is largely unhelpful

When risk conversations start, the traffic lights come out. This might work for (some) operational risk management conversations, but it is almost completely redundant for strategic risk planning. In our quest to reduce uncertainty, everyone winds up confused and disengaged, and the table isn't looked at again until the next audit.

3. Scenario planning is much more helpful

When I was pregnant with my youngest daughter, my then five and ten-year-olds engaged in a bit of scenario planning around what might happen if I were to die. (Charming kids, eh).

They had it all figured out – they would walk the baby to daycare on their way to school, Bailey (my eldest) would get a job at Mcdonald's once her pocket money ran out, she'd bring leftovers home for dinner every night, and they'd have a bang old time. Enthusiastically, my five-year-old announced: "We could have whatever we want in our sandwiches!" There's an upside if I've ever heard one.

4. Premortems are a smart way to scenario plan

There is incredible value in talking about big-picture worst-case scenarios like this, which goes well beyond the surface of risk management. Thinking the worst helps us to unearth fears and assumptions, have unsaid conversations, and build confidence in managing inevitable setbacks.

Tim Ferris made the idea of 'fear-setting' trendy, but researchers had figured out the value of a premortem (or 'prospective hindsight') at the University of Colorado in the 80s. This kind of prelaunch risk analysis heads off some of our silly optimism bias and boosts the odds we will succeed.

“We suffer more in imagination than in reality”
– Seneca

Of course, as with most things, the Stoics had it nailed thousands of years prior. Nice one, Seneca.

5. Don't trust your instincts

“Our comforting conviction that the world makes sense rests on a secure foundation: our almost unlimited ability to ignore our ignorance.”
– Daniel Kahneman

Humans are very poor intuitive assessors when it comes to risk. It's not our fault; we've got lots of fears and biases that hold us back from being objective. We overestimate the risk of unlikely things that we've heard a lot about (like murder and natural disasters), underestimate the likelihood of probable events (like illness and accident), and are stupidly optimistic about the likelihood of our success.

We pay through the nose to insure ourselves for improbable things, while remaining exposed to the things that take us down.

Prediction is not the ticket - because even if it was, we can't trust ourselves to do it accurately, especially not for the vague, uncertain, big-picture stuff.

Preparation, however, is essential. Once we let go of the idea that we can predict what's most likely with any accuracy, we can focus on what the most significant impacts to prepare for might be instead.

TL;DR: Less guessing, less fear, more gutsy conversations and good planning, eh? We've got goals to get on and achieve.