Risks: When not to worry!

The following explanation might help you better understand the risks you face in the uncertain world in which we live and how to reduce worries about small risks while addressing risks that are worthy of your attention.

Over the ages, much has been written about risk, some descriptive and some very technical and too complex for the simple (but hopefully very useful) explanation presented here. (If you are interested in a thorough discussion of how to address the complexities of risk analysis and management, see Enterprise Risk Management.)

Some of you may be familiar with Mad Magazine‘s mascot, Alfred E. Neuman and his slogan, “What me worry”? If you are not old enough to remember this, you still are probably old enough to have more worries than you would like to worry about.

At it simplest, a risk is a worry about an event that is uncertain (it might or might not happen), and if it happens, will result in a loss. The loss can be monetary, such as an investment in a stock; or the loss can be non-monetary, such a loss to your reputation; or the loss of enjoyment if it rains at an outdoor picnic you have planned.

The question we address here is when should you not worry about a risk, as Alfred E, Neuman advises, and when and how should you address risks that are ‘big’ enough to be worthy of your attention.

To answer the first question we must make an assessment of the magnitude of the risk we are considering. Is it ‘big’ enough to demand our attention or worry? How will we know if a risk is small enough to ignore or if the risk deserves our attention and consider what we might you do about it besides just worrying?

While human intuition (physiologically located in the amygdala part of the brain) is remarkably capable of unconsciously assessing a vast number of things in our lives, it is not very good at dealing with conflicting signals. Humans are susceptible to illusions — not only optical illusions, but cognitive illusions as well. Because risk is the product of the likelihood of an event and it’s consequences, and because our intuition is not very good at multiplication, we need to consciously think about likelihood and impact separately.

While it is possible to use a variety of sophisticated measurement methods to estimate the likelihoods and impacts of each risk we face, a simple every day rule of thumb as to when not to worry can be very helpful, especially for those who seem to worry to much.

If we categorize both likelihood of the risk event we are considering, as well as its impact into three categories: Low, Medium, and High, the following simple rule of thumb will enable us to rule out those risks not worth worrying about:

If either the likelihood or impact IS LOW and the corresponding impact or likelihood IS NOT high then don’t worry; your time and thoughts would be better spent on something else than worrying about this risk.

In general, the majority of everyday risks will be dismissed using this rule of thumb.

What about those risks we face that do not qualify for early dismissal?  

There are a variety of tools and measurement methods that can, with perhaps considerable cost and time, be used to do a comprehensive and scientifically meaningful risk assessment and subsequently optimally allocate resources to control and mitigate risks commensurate with your individual or organization’s risk tolerance.

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