Risk

We all want to lead our team to winning efforts. We all want to “play to win.” However, understanding the risks when planning game strategy is our first step as a leader to cross the finish line first.

Let’s use tennis as an example to help us develop our winning strategy. Professional tennis is a game played by two individuals. Two individuals also play tennis at the recreational level. When analyzing how both are played, they become vastly different even though the rules, court, and equipment are the same.

Charles D. Ellis, in his article for the Financial Analysis Journal in July of 1974, Ellis points out that the professionals play a winning game, whereas the losers play a losing game. Ellis explains:

“In the professional game, the ultimate outcome is determined by the actions of the winner. Victory is due to winning more points than the opponent wins – not, as we shall see in a moment, simply to getting a higher score than the opponent, but getting that higher score by winning points. Amateur tennis is almost entirely different. Brilliant shots, long and exciting rallies and seemingly miraculous recoveries are few and far between. On the other hand, the ball is fairly often hit into the net or out of bounds, and double faults at service are not uncommon. The amateur duffer seldom beats his opponent, but he beats himself all the time. The victor in this game of tennis gets a higher score than the opponent, but he gets that higher score because his opponent is losing even more points.”

One player is skilled enough to hit consistent winning shots, whereas the other should alter their strategy and avoid losing instead of trying to win. When we read the words “avoid losing,” there is a negative, conservative approach that resonates when most of us pride ourselves on the belief we play to win the game. Ellis breaks down our understanding of strategy by breaking risk into risk avoidance and control.

Both are two different strategies in risk management. Here's how they differ:

Risk Avoidance: Risk avoidance refers to completely eliminating or avoiding exposure to potential risks or hazards. It involves taking proactive measures to prevent or minimize the potential negative impact of a risk by avoiding activities, situations, or decisions that could lead to undesirable outcomes.

Risk Control: Risk control, on the other hand, refers to the process of identifying, evaluating, and implementing measures to mitigate or manage potential risks to minimize their impact. It focuses on reducing the likelihood or impact of identified risks rather than completely avoiding them.

What is the potential impact?

Risk Avoidance: Risk avoidance seeks to eliminate the exposure to risks completely. Individuals or organizations aim to protect themselves from potential harm, losses, or liabilities by avoiding risks. However, risk avoidance may also result in missed opportunities or limitations in certain activities.

Risk Control: Risk control aims to mitigate identified risks' impact rather than completely eliminate them. It acknowledges that risks may still occur but focuses on reducing their likelihood or minimizing the negative consequences. Risk control allows individuals or organizations to engage in activities while implementing measures to manage the associated risks.

Depending on the level of competition we face, we must understand how to quantify our risk as we establish the strategy. We need to play a winning game— while understanding risk control.