Organizations must be aware of two different types of individuals: those managers who are risk takers and those who are risk averse. Both types will affect how productivity, profits and success are determined.
Definition of Risk Takers
Managers are faced with making decisions throughout their work day. Some decisions are routine or easy, while others are complicated and risky. Certain types of people enjoy taking risks, while others prefer stability and are averse to any type of risk. A risk taker is someone who risks everything in the hope of achievement or accepts greater potential for loss in decisions and tolerates uncertainty.
In contrast, there are managers who are risk averse, and they choose options that entail fewer risks and prefer familiarity and certainty. Let's take a look at the characteristics of risk takers in an organization with an example of a successful entrepreneur's story.
Will Bates was very good with math and science. He felt he was wasting his time in his college classes. Society's message was that a college degree equaled success, but Will wanted to be able to take a different path to achievement. He had some basic characteristics of a risk taker.
Heightened expectations: This is when a manager has goals that can be unrealistic and unattainable to some, but which the risk taker feels very confident will occur. Will felt the drive to start his own technology business. The product was an advanced computer. He was determined to create the prototype himself and dropped out of college to complete the task. He did all the parts of the product development from design and operations to production and even marketing the final prototype. He eventually realized he needed a support team and hired a basic staff. He treated the staff professionally but demanded excellence.
Constant learning: This is when a manager refuses to rest on his or her past performance. They are always researching, testing and looking to learn. Will viewed life as a constant learning journey. He spent years developing his prototype and now constantly works on new technological improvements of his computer.
Embrace change: A manager who embraces change looks forward to a constant flux of new information and is always trying for improvements. Will was willing to quit college, while his friends were graduating and pursuing a career. He lived close to poverty to develop his computer. He was also willing to change his goals in regards to his company throughout its development. Lastly, he is constantly altering his company's product lines and introducing new technological gadgets.
Trust instincts: Many risk takers make decisions based on both intelligent data and a gut instinct. It's a feeling that they have regarding a decision. It usually isn't the safest decision or the most practical, but it can lead to great risk and success. When Will finished his first prototype, he invested all of his money into launching his business. If the business failed, he would have been destitute. Fortunately, his gut was correct, and his computer was a huge success.
Gambler: The last trait is that most risk takers like to gamble against the odds or risk everything. If someone tells them it is not possible, they automatically will try to complete the task. Will's parents constantly nagged him about finishing college. They told him that his prototype was a silly dream. He quickly dismissed their view and forged ahead with his risky vision.
Now, let's take a look at how risk takers affect the organizational behavior of business.
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Most research shows that women and older men in a business environment are more risk averse. Younger managers are the most risk takers. Managers must fluctuate between taking the right risk and taking a risk that destroys the company. If lower-level managers are discouraged from acting risky, it can hurt productivity and creativity.
The key to allowing risk is an organizational philosophy that allows failure through assessed risks. The ability for workers to utilize the process of trial and error can lead to untapped ideas and success. The last key to harnessing risk in an organization is the ability to not have an escalation of commitment situation develop. This is when there is a tendency to continue to support a failing course of action.
Sometimes the smartest way to mitigate a poor decision is to know when the risk outweighs the benefits. Will had an idea to develop a computer for preschool-aged children. He invested a large amount of money, but then ran into so much competition from toy companies that he decided it wasn't worth committing to a project that could be designed by a toy firm. He realized that he was escalating his commitment to a project that could cause his entire company to become bankrupt.
Managers are faced with making decisions in the business world. Some decisions are routine or easy, while others are complicated and risky. Certain types of people enjoy taking risks, while others prefer stability and are averse to any type of risk. A risk taker is someone who risks loss or injury in the hope of gain or excitement or accepts greater potential for loss in decisions and tolerates uncertainty. They have heightened expectations, a need for constant learning and an enjoyment of gambling, while also embracing change and trusting their instincts.
To the contrary, there are managers who are risk averse, and they choose options that entail fewer risks and prefer familiarity and certainty. Risk takers and those employees who are risk averse can excel in business. Their views on risk can hamper their success if they do not adopt a moderate stance. The risk takers need to be cautious about escalation of commitment. Those employees that are risk averse need to learn to trust their gut and take intelligent and well-researched chances.
After viewing this lesson, one should be able to:
Define 'risk taker' and 'risk averse'
Identify the characteristics of a risk taker
Understand how a manager's inclination toward risk can affect productivity and success
Describe the key concepts businesses can employ to moderate risk
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