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5 questions leaders should ask before taking a big risk

If you’re a senior executive, you know you have to take smart risks to ensure your company stays competitive.

But the hard part is deciding whether a given risk — making a big hire, an acquisition, a change in strategy, a new product or other big move — is worth taking.

Asking some essential questions can help expose holes in your thinking, show you where perfectionism may be getting in your way and help you think of ways to mitigate potential fallout.

1. Have I focused enough on the human dimension?

You need data to quantify the financial risks and potential upsides of a big change. But that only tells half the story.

How people at the company respond will be critical to the success or failure of any risky move you make.

You may have a great growth strategy to justify an acquisition or the hiring of an outsider, said Robert Sharrock, managing director of the board and CEO advisory practice at YSC Consulting. But have you spent enough time assessing whether the talent you already have can execute your strategy? Are some key players likely to jump ship if they feel passed over or diminished?

Especially when you’re hiring an outsider, you also need to think not only about that person’s experience and technical skills but whether they’ll be a cultural fit, said Andrew LeSueur, global managing partner of Heidrick Consulting.

2. What do key stakeholders think?

Seek out the views of those who will have an interest in the outcome and those to whom you report — such as your direct boss or CEO, the board, various teams and investors. They may highlight issues you haven’t thought enough about and may give you ideas on how to avoid or at least minimize unwanted consequences.

“Step back. Talk with people who also have a stake in the decision,” Sharrock said.

This is especially critical for executives who are more prone to act impulsively. If you don’t know if you are, ask around. Others will tell you.

3. Who is accountable if we do this?

It’s good to clarify ahead of time who should be responsible for how a risky bet turns out.

LeSueur told the story of a CEO who knew his tradition-bound company needed to change to better respond to forces affecting its market. So he created a new role for someone to challenge the status quo.

The CEO did more than that, though. He made sure the new hire had a good chance of succeeding.

“The most important thing the candidate heard from the CEO was, ‘I’ve got your back. The status quo will blunt the impact we need you to have and I’m personally accountable for your success to the board and the shareholders,'” LeSueur said.

CEOs in particular also should make sure the board stays well informed — not only about the investment required, but the patience and commitment needed to see something through, he noted.

4. Are you waiting for perfection?

Reluctance to take a risk can be prudent if there’s ample evidence to suggest failure is probable or the price for your company might be too high if things go south. But some people keep waiting for perfect information and perfect conditions before acting.

Bonnie Hagemann, CEO of Executive Development Associates, has seen lots of talented executives stall in their careers because they suffered from analysis paralysis — always wanting more facts, more data, more input before making a call.

“The root of indecision is a fear of failure,” Hagemann said.

To counteract that, she recommends routinizing the way you make decisions, large and small, because the higher you go, the more you’ll be bombarded with them. Figure out what your barriers are and the support you need to break through them. Determine the essential information you’ll need to come to a decision. Then set a time limit.

Consider, too, there may be no one right answer but many, Hagemann said. Or you may be faced with bad choices.

And recognize “sometimes you’ll be wrong,” she said.

5. What’s the risk of doing nothing?

If you’re reluctant to take a business risk, consider what might happen if you don’t act.

For example, one of the most difficult decisions for an executive is to fire someone who isn’t working out. But what are the ramifications for you and your team if that person stays on?

By their nature, risks will not always work out well. Then again, “If they do always work, you’re not taking enough risk,” Sharrock said.

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