Management Means Taking Risks

I graduated from one of our nation's service academies, so the first five years of my career was spent as a military officer. I was a highly trained Explosive Ordnance Disposal (EOD) Officer, which in Hollywood-speak is called "Bomb Squad." Most of my time was spent cleaning up the ordnance (not ord"I"nance) that Air Force planes dropped on, or shot at, targets on bombing and gunnery ranges, responding to flightline emergencies involving jammed bombs and aircraft machine guns, and responding to a now famous abbreviation - IED.

The abbreviation (not the acronym) IED stands for Improvised Explosive Device, and it has become well known in recent times as a main problem in the ongoing war in Iraq. Yes, yes, IEDs and dud explosives are hazardous, but there is a science, a body of operations research, and strict procedures for handling even the most unusual of threats. The image of some poor technician sweating bullets and practically having a heart attack as he tries to decide whether or not to cut the red wire or the blue one with an alarm clock ticking next to his ear, is a complete fabrication. EOD is a profession and that means that there is a body of knowledge and codified approaches to solving related problems.

For a long time afterward when I explained in job interviews what I did in the service, I also found myself defending my EOD experience against the moronic idea posed by punk interviewers that I had wasted years of my life doing something that had no skills that were transferable to the civilian workplace. As time goes by, I realize more and more that I was learning and practicing the very essence of good management.

I was learning to not panic even when people around me were. I was learning to lead in stressful situations. I was learning to make decisions, important decisions, when faced with very serious deadlines and very incomplete information. In sum, I was learning to manage risk. No job has ever been as interesting, no problem or deadline has ever seemed all that stressful, since.

In an earlier essay, I defined management as the art and science of planning, organizing, motivating and controlling the effective and efficient use of resources in goal-oriented organizations. Now that's a nice and textbook-ish definition. I also defined it more personally as getting things done through and with other people in organized settings. In the past few years, however, I have realized that for my own uses, the real essence of management is making decisions that consider risks.

This series of essays is written for the new and/or young manager, so I'd like you to consider that last definition and how it applies to you and your penchant for taking risks. There are lots of books that address risk management and I encourage you to find and devour one that best suits you. That should not be much of a problem, because in business we speak of financial risk, budget risk, supplier risk, consumer risk, producer risk, marketing risk, contracting risk, political risk, stakeholder risk, and it's fair to make up more terms that cover every facet of business and management in general.

I won't even begin to mention all the different tools and techniques used for managing risk. Some are almost universally relevant, while others have very narrow applications. Part of your job is to understand the ones that apply to you. I'll just say that some are highly technical and try to make a mathematical science out of it, and there are others that only consider qualitative factors and depend on sound judgment more than analytical skill.

If you are a new manager and you really don't think you make risk-based decisions, that's okay. Lots of entry-level management jobs provide solutions to problems that are practically programmed by "corporate." All you have to do is refer to a manual or policy guide or checklist or handbook or regulation or whatever your organization has prepared for you. I'm still including you in the conversation. Sooner or later you will be faced with the decision to break the rules or continue to follow them. I'm not suggesting that you ignore rules for personal convenience, I am simply admitting to the reality that no rulebook can possibly cover all possible contingencies. Just insisting that the rules be followed contains some risk. Even doing nothing at all takes a risk.

Of course, I'm really focusing on management jobs that include more obvious risks, in the categories that I mentioned above. Within your own job context, I suggest some introspection. What is your personal "risk profile?" Are you risk-prone, or risk-averse? Do you make decisions that maximize the potential gain, or minimize the potential loss? Are you a high-risk / high-return type, or do you prefer to settle for modest-risk / modest-return options? Do you understand the difference between a problem that is urgent, and a problem that is important? Do you weigh the consequences of a problem occurring, against the probability of the problem occurring? These are rhetorical questions. I pose them to help you expose to yourself your present familiarity with the topic of risk.

Many decades ago, a famous economist named Joseph Schumpeter made a clear distinction between the "manager" and the "entrepreneur." The difference comes down to an individual's propensity for taking business risks. He felt that the entrepreneur, as an abstract economic concept, was the locus of a phenomenon called "creative destruction," the constant rejuvenation of industry by people who take what appear to be irrational risks, in the face of the status quo. Interestingly, when observing the risk-rationalizing nature of the status quo, he sided with Karl Marx in observing the possibility that capitalism contains the seeds of its own destruction - but that the "entrepreneurship" phenomenon was the antidote to this pathology.

So, my new manager, are you going to be part of the disease, or the antidote? Don't just mind the store. Learn to understand and carefully manage risks.