CXO

How to understand your risk tolerance, and why that's important

Understanding your capacity for risk taking and learning to work with that can help set you up for success as a leader. Here are some tips on assessing your risk tolerance.

My happiest management experiences have occurred when I was managing in the software and semiconductor industries. The pace of work was fast, we took risks when we had to, and the rewards of our creativity were great.

In an interim period between managing in high tech, I took a job as a banking executive. I adapted quickly to the scrupulous observation of regulatory guidelines and fastidious and conservative risk management on projects, and I did it well—but I wasn't as happy as a manager.

What I discovered was that every manager has a distinct personality—and one side of this personality is one's appetite for risk.

In my case, I enjoyed the excitement of developing new ideas in tech, even though not every one of those ideas always worked. When ideas didn't work in tech, we remained undaunted as a team. We simply tried another way.

In the financial environment, management styles were conservative and decidedly more risk-averse. The industry had much higher levels of regulatory scrutiny, and this more conservative management approach made sense—but there were times for me personally when I felt limited as a manager when it came to trying creative ideas that I felt could work.

Eventually I left banking to return to tech, and I left with the realization that there is no right or wrong approach to what one's management style should be.

What does matter is that you understand early on as a manager what your management style is and your preferred environment for managing are. If you don't do this, you stand the risk of being unhappy in a company culture that is not suited to your style—and it is harder to succeed in that situation.

SEE: Tips for building and advancing your leadership career (free PDF) (TechRepublic)

One way of determining your management style is by understanding what your tolerance for risk is.

Here's how you can do this:

Identify your core values

What is important to you as an individual? Are qualities like perseverance and accountability at the top of your list, which might mean that you are willing to take a risk to promote a cause that you believe in? Are sociability and acceptance important, which might mean that "belonging" and "playing it safe" is most important to you? For many of us, these values are set early in our lives, and we tend to surround ourselves with people and environments (including companies) that sustain these values.The closer that you can align who you are and what is important to you with the values of the organization that you work for, the better your chances for professional success and happiness.

Assess your own tolerance for risk

Most of us have a basic understanding of situations that make us risk-averse and those that don't bother us at all, but there are also psychometric tests that you can self-administer or even just take for fun to learn more about yourself and your tolerance for risk. The more you consciously understand about where you are comfortable with risk-taking and where you are not, the better you'll be able to define your own management style and approaches with others.

Work for companies that are compatible with you

Companies, like individuals, have different values, personalities and appetites for risk. For companies, there is an entire methodology built around determining what a particular company's risk tolerance is. It is called enterprise risk management (ERM), and the method puts companies through many of the same paces that individuals go through in determining what their management styles are and how comfortable they are with different types of risk.

There is no rule of thumb that fits every company, but in general, companies with higher levels of regulatory compliance such as banks, insurance companies, and healthcare organizations, tend to be more risk averse. Entrepreneurial companies in tech and manufacturing tend to take more risks in the hope that they will achieve breakthroughs.

In the end, what you want to do as a manager is to find a corporate environment that blends well with your own values and appetite for risk. This will also be the environment where you are likely to enjoy your best success as a manager—and your staff will like this, too!

Also see:

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Image: iStock/champja

About Mary Shacklett

Mary E. Shacklett is president of Transworld Data, a technology research and market development firm. Prior to founding the company, Mary was Senior Vice President of Marketing and Technology at TCCU, Inc., a financial services firm; Vice President o...

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