It’s never a risk-free decision

Nervous leaders look for risk-free decisions. They seek to remove uncertainty, ambiguity and doubt from every decision, from their lunch order through to a major capital investment or recruitment decision.

This quest has them seeking more and more data, another review, more meetings and procrastination.

At worst, these leaders play safe and only commit to bland options that are almost certainly going ahead or, even if they don’t go ahead, the consequences of failure are minor.

If this is you, then there is some bad news ahead, especially if you have ambitions to advance in your career.

The bad news is, 'there is no such thing as a risk-free decision', and the more senior you are in your organisation, the riskier every decision becomes.

Timespan of Discretion

Several decades ago, management guru Elliott Jaques coined the concept of Timespan of Discretion. This refers to the time gap between when a decision is made and when the impact of that decision is felt.

So, for example, if you work at a reception desk and book a courier to deliver a package to a client, then the time gap between the booking and the client receiving the package might be two hours.

By contrast, a chief executive officer might decide to build a new piece of plant in their factory and the time gap in this case could be five years.

The risk in both these decisions is all the things that could go wrong in the time gap.

For the receptionist, the risks are low. Unless the courier driver has an accident, fails to pick up the package, or can’t find the customer's office, the receptionist can be reasonably confident the package will be delivered on time.

For the chief executive, the potential number of intervening factors during the five-year build is endless. A major economic downturn, cash flow, labour shortages or global pandemic could derail an excellent decision and turn it into a disaster for the project and potentially the CEO's career.

Known vs unknown risks

The decision risk for a CEO is very high. Although many of the known risks can be mitigated, it is the unknown or unanticipated risks that will catch them out.

All material investments of capital, people or other resources, are likely to signal an extended time between the decision to start and the benefits being realised. Every minute of this time opens the door to an external influence that can impact the outcome.

The easy (and wrong) answer

The easy (and wrong) answer to this dilemma is to only make decisions with a short timespan of discretion.

Narrow gaps between decision and impact make predicting the likelihood of success much easier, but this isn’t the real world.

An organisation will fail if every decision it makes has a short time horizon. Investments in the future of an organisation require vision and time to implement.

What can we learn from the nervous leaders?

The disparaging description of nervous leaders in the opening paragraph might imply we have nothing to learn from them. However, their anxiety forces them to do their research, gather data, support decisions with evidence rather than supposition and seek wise counsel from others.

All of these activities are valid and worthwhile. They counter the impulsive, reckless decision-making style of some leaders.

Where the quest for more information by the nervous leaders comes unstuck is in the amount of information they seek and in their ultimate goal in gathering the information. Many nervous leaders want enough information and data to make a risk-free decision; a goal that is unachievable at practically any level in an organisation – even on reception.

A more balanced position is to gather enough information, within the time we have to make a decision, or to achieve a level of comfort, or risk, that enables us to move forward.

So, what’s the answer to better decision-making?

Preparation for big, risky, decisions should start well before it’s time to actually make the decision.

Skilful leaders are constantly scanning the environment, keeping up to date with trends and shifts in the wider economy and their industry. They read a lot, they talk to others in their network, and they watch competitors and complementary industries. They do this because it enhances their knowledge and finetunes their insights and instincts.

It is these kinds of leaders who often get dismissed when they make a seemingly “lucky” call that generates massive success for themselves or their organisation.

Little do the cynics know that this person had been preparing for this “lucky” break for several decades through conscientious homework on the commercial environment in which they operate. When the opportunity arises, they are sufficiently prepared to recognise the potential and seize the day.

But even with this diligent preparation, there are no guarantees; nothing is risk-free. No one predicted the COVID pandemic, so even the most disciplined leader may have suffered defeat with a decision that was impacted significantly by the pandemic shutdowns.

Leadership is risky. Risk-free decisions don’t exist. Our challenge and opportunity is to manage and mitigate as much of the risk as possible, without paralysing our portfolio or compromising the longer-term sustainable success of the organisation.