Calculated risks bring new opportunities and new hazards

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Calculated risks bring new opportunities and new hazards

Benchmarking the best practice is a great way to improve your performance. But it must be done with the understanding that you cannot become the best by imitating the best. At best you will become second best. In the context of Mental Toughness you need to take calculated risks beyond benchmarking to create new value. 

A calculated risk is a risk that takes you beyond your habitual boundaries. This risk is aimed at heralding new opportunities but it could also expose you to new hazards. The type of risk is usually taken after you have carefully considered the consequences of pushing beyond habitual boundaries.

The calculated risks you take should be proportionate to: the desire and passion you have for your intent and the threat your competitors pose. To do this you need to; understand the relationship between risks and return, position yourself optimally relative to your intention and your opposition, protect against the extreme downside, overcome self-imposed limitations, embrace trial and error, use optimism, apply creative imagination, be inventive, innovate, use re-invention, improvise, change your reference points, increase your sense of urgency, grab opportunities, embrace uncertainty and manage rising levels of fear. You do all, or any of these, whilst still avoiding risks that are poorly understood and not calculated. 

My life’s experiences relative to risk taking have informed me that most things I feared never materialized. In addition I have come to realize that that I am going to regret a lot more the things I didn’t do than the things I did do. Thus far that is. 

Understand the relationship between risk and return

I am sure you have often heard about the relationship between risk and return. The claim is; the greater the risk the higher the return and conversely; if the risk does not pay off the higher its negative consequence will be. In financial circles they call this a cost versus benefit analysis. The Mental Toughness lesson is to manage your risk aversion at the one extreme as well as avoid taking irresponsible risks on the other. Your current risk taking ability may be anywhere from extremely risk averse on the one end of a risk taking continuum or extremely risk embracing on the other end. Risk aversion is the reluctance of a person to accept a proposition with an uncertain, possibly higher pay off but with a risk of losing value, rather than another proposition with a more certain, but lower payoff. For example, a risk-averse person might choose to put their money into a bank account with a low but guaranteed interest rate, rather than invest in shares or other investments that may yield higher returns. 

You make choices involving risks every day. Over time you may have become cautious, preferring to minimize risks even when the potential benefit is large.  Because of the risk-return trade off  you need to become more aware of the role of your personal risk tolerance and risk aversion when making choices. Taking on some risk is the price of achieving returns. Therefore, if you want to be successful or significant you can’t cut out high risks. The goal instead is to find an appropriate balance – one that generates returns and allows you to sleep at night. 

Calculated risks bring new opportunities and new hazards; understand the relationship between risk and return

Dr Steve Harris – Mind Doctor

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