By identifying blockages and blind spots, the Risk indicator helps improve communication and decision-making.
The indicator uses a simple 0 to 10 scale that provides an overall personal score. In addition, the report shows how that score is calculated from several important risk areas – each with their own scores.
Differences in risk perception and behaviour can understandably lead to conflict in management teams – particularly when times are tough. Do any of these statements sound familiar?
“We’re pushing the business beyond my comfort zone”
“We’re not pushing hard enough”
“My partners are too quick to make investments”
“My partners are slowing me down and we’re missing business opportunities”
The senior team’s approach to risk is particularly critical when building and growing the business. People understand the concept of risk, but don’t generally use a numerical analysis.
To overcome this problem, we developed the Risk indicator to give individuals and teams a precise, scientific and granular tool. This takes the emotion out of the conversation and enables management teams to have a much more objective discussion when it comes to business investments and decision making.
Knowing their individual and combined risk profiles means the management team can now discuss strategy more explicitly. Rather than saying, ‘You’re always a bit crazy. The rest of us prefer more sensible decisions,’ the team now has some comparative numerical values to support the discussion.
They might say, ‘Your risk profile is 7.2 and I’m 4.2. No wonder we always have a different view on our strategy discussions!’ Putting numbers to differences helps explain why perceptions and approaches are sometimes at odds.
One’s natural approach to risk is often hidden and management teams will focus on returns without understanding how their differences play out daily across the business. If you understand your own propensity for risk, and that of your team, you’ll suddenly have a clearer context for making business decisions.
The indicator precisely scores your risk profile – with all its different aspects – and lets you see how you’re viewing risk compared with other people. These scores enable a clearer conversation with business colleagues about the best way to manage through cycles of growth and investment.
4 types of risk
As well as one overall score, we also provide an underlying set of scores that provide additional depth and sit within the overall score.
Investment: If you have a high level of investment risk, you might spot an opportunity and invest immediately. With a low investment risk, you’ll prefer to gather the facts and figures – wider due diligence – before you make an investment.
Returns: The higher your returns risk, the more returns you want and the more risk you’ll accept. Investments promising huge returns are usually the most risky.
Volatility: A high volatility risk means you’re relaxed if your investment fluctuates. In the business context you might have a new hire, for example. With a low volatility risk you’d become nervous about performance fluctuations and want to dismiss the individual. In other words, close the investment. Someone with a high volatility risk is more comfortable with the new hire’s performance variability.
Management: Examines the degree to which you’ll check on your investment. If you’d invested in a business, you might constantly monitor its performance. A similar low monitor risk in a business context appears as a tendency to micromanage. With a high management risk you’re satisfied with far less performance feedback and oversight.
Context influences your perception
The 4 risk aspects above relate to the investment timeline, i.e. pre-and post-investment. Because your perception of risk is affected by your context, the indicator also examines this critical influencer in three ways:
• Today’s financial position – how leveraged is your business?
• What’s your view of the future desired financial position?
• What’s your perception of the current economic climate?
These 3 factors determine how ready you feel to invest. In particular, if you perceive the current economic climate to be extremely negative, you’re more likely to reduce your level of risk.
The bigger the investment, the bigger the risk. Using your Risk profiling will enable your business team to establish the right strategy and timeline for investment to take your business into growth.
To learn more about Compass indicators, team dashboards and how they can accelerate business growth, visit Training by Shirlaws to view our range of courses.